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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
- or -
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to__________
Commission File Number: 001-15185
fhn-20211231_g1.jpg
(Exact name of registrant as specified in its charter)
TN 62-0803242
(State or other jurisdiction
incorporation of organization)
 (IRS Employer
Identification No.)
165 Madison Avenue
Memphis,Tennessee 38103
(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code: 901-523-4444

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
$.625 Par Value Common Capital Stock FHNNew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series B
FHN PR BNew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series C
FHN PR CNew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series D
FHN PR DNew York Stock Exchange LLC
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series E
FHN PR ENew York Stock Exchange LLC
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series F
FHN PR FNew York Stock Exchange LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No


Table of Contents

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated filer Non-accelerated filer 
Smaller reporting companyEmerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
At June 30, 2021, the aggregate market value of registrant common stock held by non-affiliates of the registrant was approximately $9.4 billion based on the closing stock price reported for that date. At January 31, 2022, the registrant had 533,633,668 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be furnished to shareholders in connection with the Annual Meeting of shareholders scheduled for April 26, 2022: Part III of this Report

Auditor Name:    KPMG LLP        Auditor Location:     Memphis, TN            Auditor Firm ID: 185


TABLE OF CONTENTS and GLOSSARY
Table of Contents
ITEMPageITEMPage
GlossaryItem 8.Financial Statements and Supplementary Data
Executive Summary of Principal Investment Risks
Forward-Looking StatementsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part I
Item 1. BusinessItem 9A.Controls and Procedures
Item 1A. Risk FactorsItem 9B.Other Information
Item 1B. Unresolved Staff CommentsPart III
Item 2. PropertiesItem 10.Directors and Executive Officers of the Registrant
Item 3. Legal ProceedingsItem 11.Executive Compensation
Item 4. Mine Safety DisclosuresItem 12.Security Ownership of Certain Beneficial Owners
Supplemental Part I Informationand Management and Related Stockholder Matters
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Item 13.Certain Relationships and Related Transactions
Purchases of Equity SecuritiesItem 14.Principal Accountant Fees and Services
Item 6. [reserved]Part IV
Item 7. Management’s Discussion and Analysis of Item 15.Exhibits and Financial Statement Schedules
Financial Condition and Results of OperationsItem 16.Form 10-K Summary
Item 7A.Quantitative and Qualitative Disclosures about Market RiskSignatures

MD&A and Financial Statement References:
In this report: "2021 MD&A" and "2021 MD&A (Item 7)" generally refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, inclusive of Glossary of Selected Financial Terms and Acronyms, appearing in Item 7 within Part II of this report; and, "2021 Financial Statements" and "2021 Financial Statements (Item 8)" generally refer to our Consolidated Balance Sheets, our Consolidated Statements of Income, our Consolidated Statements of Comprehensive Income, our Consolidated Statements of Changes in Equity, our Consolidated Statements of Cash Flows, and the Notes to the Consolidated Financial Statements, all appearing in Item 8 within Part II of this report.


Glossary
The following is a list of common acronyms and terms used throughout this report:
ACLAllowance for credit losses
AFS Available for sale
AIRAccrued interest receivable
ALCOAsset/Liability Committee
ALLLAllowance for loan and lease losses
ALMAsset/liability management
AOCIAccumulated other comprehensive income
ASCFASB Accounting Standards Codification
AssociatePerson employed by FHN
    
ASUAccounting Standards Update
BankFirst Horizon Bank
BOLIBank-owned life insurance
C&ICommercial, financial, and industrial loan portfolio
CASCredit Assurance Services
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CBFCapital Bank Financial
CCARComprehensive Capital Analysis and Review


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  3
2021 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS and GLOSSARY
CECLCurrent expected credit loss
CEOChief Executive Officer
CFPBConsumer Financial Protection Bureau
CMOCollateralized mortgage obligations
CompanyFirst Horizon Corporation
CorporationFirst Horizon Corporation
CRACommunity Reinvestment Act
CRECommercial Real Estate
CRMCCredit Risk Management Committee
DTADeferred tax asset
DTLDeferred tax liability
EAD
Exposure as default
ECPEquity Compensation Plan
EPSEarnings per share
Fannie Mae
Federal National Mortgage Association
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
Federal ReserveFederal Reserve Board
FedFederal Reserve Board
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FHNFirst Horizon Corporation
FHNFFHN Financial; FHN's fixed income division
FICOFair Isaac Corporation
First HorizonFirst Horizon Corporation
FRBFederal Reserve Bank or the Federal Reserve Board
Freddie Mac
Federal Home Loan Mortgage Corporation
FTEFully taxable equivalent
FTRESCFT Real Estate Securities Company, Inc.
GAAPGenerally accepted accounting principles
GSEGovernment sponsored enterprises, in this filing references Fannie Mae and Freddie Mac
HELOCHome equity line of credit
HFSHeld for sale
HTMHeld to maturity
IBKCIBERIABANK Corporation
ISDAInternational Swap and Derivatives Association
IRSInternal Revenue Service
LGDLoss given default
LIBORLondon Inter-Bank Offered Rate
LIHTCLow Income Housing Tax Credit
LLCLimited Liability Company

LMCLoans to mortgage companies
LOCOMLower of cost or market
LRRDLoan Rehab and Recovery Department
LTVLoan-to-value
MBSMortgage-backed securities
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
NAICSNorth American Industry Classification System
NIINet interest income
NMNot meaningful
NMTC
New Markets Tax Credit
NPANonperforming asset
Non-PCDNon-Purchased Credit Deteriorated Financial Assets
NPLNonperforming loan
OREOOther Real Estate-owned
PCAOBPublic Company Accounting Oversight Board
PCDPurchased Credit Deteriorated Financial Assets
PCIPurchased credit impaired
PDProbability of default
PMPortfolio managers
PPPPaycheck Protection Program
PSUPerformance Stock Unit
REReal estate
RMRelationship managers
ROAReturn on Assets
ROURight of use
RPLReasonably possible loss
SBASmall Business Administration
SECSecurities and Exchange Commission
SVaRStressed Value-at-Risk
TDThe Toronto-Dominion Bank
TDBNATD Bank, N.A.
TD-USTD Bank US Holding Company
TD Merger AgreementMerger agreement between FHN, TD, TD-US, and a TD-US subsidiary
Proposed TD MergerThe merger transactions contemplated by the TD Merger Agreement
TDRTroubled Debt Restructuring
TRUPTrust preferred loan
UPBUnpaid principal balance
USDAUnited States Department of Agriculture
VaRValue-at-Risk
VIEVariable Interest Entities
we/us/ourFirst Horizon Corporation



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  4
2021 FORM 10-K ANNUAL REPORT

EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
Executive Summary of
Principal Investment Risks
This section provides an executive summary of the principal risks associated with an investment in our equity or debt securities. Our businesses are complex, and so are the risks associated with them. This summary is not a complete statement of risks a prospective or current investor should consider.
The Economy. Our businesses and our industry are heavily entwined with the U.S. economy. We tend to perform better when economic conditions are favorable, and our performance tends to be weaker when the economy is weaker. That relationship can be quite strong, which can make our income and other key performance measures volatile, especially when compared with companies in many other industries. The economy tends to rise and fall in a cyclical manner which is difficult to predict, which in turn makes our performance difficult to predict. For additional information, see the Cyclicality discussion within Other Business Information, which begins on page 18, and Risks from Economic Downturns and Changes which begins on page 38.
Credit Loss. Our lending business—accounting for about half of our revenues—is critically dependent on our clients being able to pay us back. That ability often depends on economic conditions, but many individual factors can be critical as well. If a client defaults on a loan, generally we will experience a financial loss which often is only reduced, not eliminated, by collateral supporting the loan. Accounting rules require us to evaluate current expected credit loss (CECL) each quarter, booking losses based on our expectations. That process can result in a highly volatile pattern of recognizing credit loss each quarter. The past two years demonstrated this volatility, based on the economic and business disruptions associated with the COVID-19 pandemic in the first half of 2020, followed by several fairly sudden changes in business circumstances and expectations over the next 18 months. For additional information, see: the discussion captioned CECL Accounting and COVID-19 within the Significant Business Developments Over Past Five Years section of Item 1, which begins on page 12; Credit Risks beginning on page 40; and Risks Related to COVID-19 Pandemic beginning on page 42.
Loan Loss vs Loan Profit. Lending generally is a high-volume, low-margin business. This means that we often need the profits from many loans to make up for losses from one loan. For our earnings to be strong, we need to hold loan losses to a very low level, which makes our management of credit quality
a critical function for us. This imbalance between loss and profit can amplify the potential for volatility in our earnings. For additional information, see Credit Risks beginning on page 40.
Interest Rate Conditions. Interest rates and, especially, the shape of the yield curve, are critical drivers of our profit margin from lending. If the yield curve is flat—with long-term rates only slightly higher than short-term rates—our lending margins shrink, and so does our net interest income. Interest rate policy is controlled by federal agencies and by market forces, not by us. In 2021 the key agency in the U.S. announced its intention to cause interest rates generally to rise, gradually in late 2021 and 2022. This represented a significant change of policy compared with 2020. Moreover, by the end of 2021 inflation in the U.S. had risen to levels not seen in decades, suggesting the announced policy shift may be executed more quickly or robustly than first thought. In early 2022, that agency announced details which, coupled with market reaction to date, lead us to expect that the yield curve will flatten during the year as rates generally rise. Over half of our loan portfolio bears variable interest rates associated with short-term reference rates; those loans should react fairly quickly to agency increases in short-term rates. For additional information, see: the Monetary Policy Shifts discussion within Significant Business Developments Over Past Five Years, which begins on page 12; the Cyclicality discussion within Other Business Information, which begins on page 18; Risks Associated with Monetary Events beginning on page 38; Interest Rate and Yield Curve Risks beginning on page 48; and discussion under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), which begins on page 99.
Funding Balance. In our lending business, we aggregate money and lend it out at rates which more than cover our costs. We constantly must balance our funding sources (deposits and borrowings) with our funding needs (lending). Imbalances tend to hurt our earnings. If sources become too large, generally we can cut back short-term borrowing or invest the excess, but our margins can be weaker as a result. If sources become too small, we might have to forego profitable lending or increase funding by increasing deposit or borrowing volumes and costs. For additional information, see Liquidity and Funding Risks beginning on page 46.


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2021 FORM 10-K ANNUAL REPORT

EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
Competition. Competition for clients and talent in our industry is intense and unlikely to abate. Competition for clients pressures us to make interest rate and other concessions on lending and on deposits, which reduce our margins. Competition for revenue-producing talent is a key method of obtaining new client relationships in many parts of our industry, and pressures us to increase compensation expense. For additional information, see Competition beginning on page 16, and Traditional Competition Risks beginning on page 33.
Banking Consolidation. Since the advent of nation-wide branching in the 1980s, the banking industry has experienced several waves of substantial consolidation. In the past twenty years, technological improvements have allowed institutions to become extremely large while maintaining adequate client service, and, due to cost efficiencies associated with scalable technology, have rewarded the largest institutions disproportionately, incenting banks to grow larger, faster. Consolidation can abruptly change the competitive environment in our markets. In addition, when we participate in consolidating actions, as we did in 2017 and 2020, typically it creates internal disruption and expense for a time while we integrate systems, consolidate branches, and take other consolidation-related actions. Moreover, in our industry, the market tends to discount, for a time, the stock price of banks that engage in major mergers, in part due to the transaction and integration expenses mentioned above coupled with the risk that the combination may not achieve management’s strategic or tactical objectives. For additional information, see: Significant Business Developments Over Past Five Years beginning on page 12; the Strategic Transactions discussion within the Other Business Information section which begins on page 18; and Traditional Strategic and Macro Risks beginning on page 34.
Industry Disruption. Technological innovation, and the associated changes in client preferences, are radically transforming our industry and how financial services are delivered to clients. Keeping pace is expensive and difficult, while being a consistent innovation leader is practically impossible for a bank our size. Moreover, rapid innovation has the potential to be destructive of traditional companies in our
industry, as it has done and is doing in other industries. For additional information, see Industry Disruption beginning on page 35.
Regulated Industry. Our principal businesses are heavily regulated. Our two primary banking regulators can examine us, cause us to change our business operations, and significantly restrict our ability to pursue lines of business, in ways not applicable to companies in most other industries. We also have several secondary regulators, each with significant though less-encompassing powers. The primary missions of the regulators are to protect the banking system as a whole, to protect the federal government’s deposit insurance fund and program, and to protect clients; none exists to enhance our profitability or promote the interests of our investors. Moreover, regulators are government agencies, and as such can experience significant policy changes when the elected branches of government experience such changes. For additional information, see Regulatory, Legislative, and Legal Risks beginning on page 43.
Security & Technology. Fraud and theft have always been significant risks for banks; we experience fraud and theft loss every year. Technology has allowed fraud and theft risks to grow substantially. Bad actors can impact us from around the world, day or night, both directly and through our clients or vendors. Typically, the more a system is built to be secure and robust, the less that system can be flexible and adaptable. Moreover, high-security often can be associated with a sub-optimal user experience. For additional information, see Operational Risks beginning on page 36.
Expense Control. In the current low-interest-rate environment, banks in the U.S. are focused on reducing operating costs as much as possible. For additional information, see Operational Risks beginning on page 36, and Risks of Expense Control beginning on page 45.
For a more complete discussion of the risks associated with our businesses and operations and investment in our securities, see Item 1A—Risk Factors, beginning on page 31.


Forward-Looking Statements
This report on Form 10-K, including materials incorporated into it, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to FHN's beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information, but


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FORWARD-LOOKING STATEMENTS
instead pertain to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond our control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors:
the possibility that the anticipated benefits of the IBKC merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in any or all of FHN’s market areas;
the possibility that the IBKC merger may be more expensive to integrate than anticipated, including as a result of unexpected factors or events;
potential adverse reactions or changes to business or associate relationships resulting from the IBKC merger;
global, general and local economic and business conditions, including economic recession or depression;
the potential impacts on FHN’s businesses of the COVID-19 pandemic, including negative impacts from quarantines, market declines, and volatility, and changes in client behavior related to the COVID-19 pandemic;
the stability or volatility of values and activity in the residential housing and commercial real estate markets;
potential requirements for FHN to repurchase, or compensate for losses from, previously sold or securitized mortgages or securities based on such mortgages;
potential claims alleging mortgage servicing failures, individually, on a class basis, or as master servicer of securitized loans;
potential claims relating to participation in government programs, especially lending or other financial services programs;
expectations of and actual timing and amount of interest rate movements, including the slope and shape of the yield curve, which can have a significant impact on a financial services institution;
market and monetary fluctuations, including fluctuations in mortgage markets;
the financial condition of borrowers and other counterparties;
competition within and outside the financial services industry;
the occurrence of natural or man-made disasters, global pandemics, conflicts, or terrorist attacks, or other adverse external events;
effectiveness and cost-efficiency of FHN’s hedging practices;
fraud, theft, or other incursions through conventional, electronic, or other means directly or indirectly affecting FHN or its clients, business counterparties or competitors;
the ability to adapt products and services to changing industry standards and client preferences;
risks inherent in originating, selling, servicing, and holding loans and loan-based assets, including prepayment risks, pricing concessions, fluctuation in U.S. housing and other real estate prices, fluctuation of collateral values, and changes in client profiles;
the changes in the regulation of the U.S. financial services industry;
changes in laws, regulations, and administrative actions, including executive orders, whether or not specific to the financial services industry;
changes in accounting policies, standards, and interpretations;
evolving capital and liquidity standards under applicable regulatory rules;
accounting policies and processes require management to make estimates about matters that are uncertain;
the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the TD Merger Agreement;
the outcome of any legal proceedings that may be instituted against FHN, TD, or TD-US, including potential litigation that may be instituted against FHN or its directors or officers related to the Proposed TD Merger or the TD Merger Agreement;
the timing and completion of the Proposed TD Merger, including the possibility that the Proposed TD Merger will not close when expected or at all because required regulatory, shareholder, or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated;


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FORWARD-LOOKING STATEMENTS
the risk that any announcements relating to the Proposed TD Merger could have adverse effects on the market price of the common stock of FHN;
certain restrictions during the pendency of the Proposed TD Merger that may impact FHN’s ability to pursue certain business opportunities or strategic transactions;
the possibility that the Proposed TD Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
the diversion of management’s attention from ongoing business operations and opportunities caused by the Proposed TD Merger;
reputational risk and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the Proposed TD Merger; and
other factors that may affect future results of FHN.
FHN assumes no obligation to update or revise any forward-looking statements that are made in this report on Form 10-K or in any other statement, release, report, or filing from time to time. Actual results could differ and expectations could change, possibly materially, because of one or more factors, including those factors listed above or presented elsewhere in this report, or in those factors listed in material incorporated by reference into this report. In evaluating forward-looking statements and assessing our prospects, readers of this report should carefully consider the factors mentioned above along with the additional risk factors discussed in Items 1 and 1A of this report and in 2021 MD&A (Item 7), among others.

Important Other Information
In connection with the proposed transaction, FHN intends to file relevant materials with the SEC, including preliminary and definitive proxy statements on Schedule 14A.
This Annual Report on Form 10-K does not constitute an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF FHN ARE URGED TO READ, WHEN AVAILABLE, ALL RELEVANT DOCUMENTS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) FILED WITH THE SEC, INCLUDING FHN’S PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FHN AND THE PROPOSED TRANSACTION.
Investors and shareholders will be able to obtain a free copy of the proxy statement as well as other relevant documents when filed with the SEC without charge at the SEC’s website (http://www.sec.gov). Copies of the proxy statement and the filings with the SEC that will be incorporated by reference in the proxy statement will also be available once filed, without charge, by directing a request to Clyde A. Billings Jr., First Horizon Corporation, 165 Madison, Memphis, TN 38103, telephone (901) 523-4444.


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ITEM 1. BUSINESS
PART I


Item 1.    Business
Our Businesses
Overview
First Horizon Corporation is a Tennessee corporation. We incorporated in 1968, and are headquartered in Memphis, Tennessee. We are a bank holding company under the Bank Holding Company Act, and a financial holding company under the Gramm-Leach-Bliley Act. Our common stock is listed on the New York Stock Exchange under the symbol “FHN.” At December 31, 2021, we had total consolidated assets of $89 billion. We provide diversified financial services primarily through our principal subsidiary, First Horizon Bank. The Bank is a Tennessee banking corporation headquartered in Memphis, Tennessee.
During 2021 approximately 35% of our consolidated revenues were provided by fee and other noninterest income, and approximately 65% of revenues were provided by net interest income.
As a financial holding company, we coordinate the financial resources of the consolidated enterprise and maintain systems of financial, operational, and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part II.
The Bank
The Bank was founded in 1864 as First National Bank of Memphis. During 2021, through its various business lines, including consolidated subsidiaries, the Bank reported revenues (net interest income plus noninterest income) of approximately $3 billion. The Bank generated a substantial majority of First Horizon’s consolidated revenue. At
December 31, 2021, the Bank had $89 billion in total assets, $76 billion in total deposits, and $54 billion in total loans and leases (net of unearned income and net of allowance for loan and lease losses).
Principal Businesses, Brands, & Locations
At year-end 2021 our principal businesses were conducted mostly under two or three brands. Brand integration from the IBKC merger was delayed until February 2022, after which we began phasing out certain brands. Our principal brands at year-end are summarized in Table 1.1.
Table 1.1
Principal Businesses & Brands At Year-End
BusinessesBrands
Banking & financial services generally
First Horizon & First Horizon Bank
IBERIABANK
Fixed income /
capital markets
FHN Financial
Mortgage lending
First Horizon Bank
IBERIABANK Mortgage
Title services
Lenders Title Group
Insurance brokerage & management services
First Horizon Advisors
Wealth management & brokerage services
First Horizon Advisors
IBERIA Wealth Management
At December 31, 2021, First Horizon’s subsidiaries had over 500 business locations in 22 U.S. states, excluding off-premises ATMs. Most of those locations were banking centers. At year-end, First Horizon had 427 banking centers in twelve states, as shown in Table 1.2.
Table 1.2
Banking Centers at Year-End
State#State#
Tennessee140Georgia12
Florida83South Carolina10
North Carolina79Texas8
Louisiana57Virginia8
Alabama13Mississippi4
Arkansas12New York1
Many banking centers contain special-service areas such as wealth management and mortgage lending.
At year-end 2021, First Horizon also had client-service offices not physically within banking centers, including


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ITEM 1. BUSINESS
fixed income, title services, home mortgage, wealth management, and commercial loan offices. The largest groups of those offices were: 29 fixed income offices in 16 states across the U.S.; 30 title services offices in Arkansas,
Tennessee, and Louisiana; and 15 stand-alone mortgage lending offices in 9 states. First Horizon also has operational and administrative offices.
Loans & Deposits
Lending and deposit-taking are core businesses for us. Our largest resource to fund our lending is our deposit base. At year-end 2021, we had total loans (net of unearned income) of $55 billion, total net loans (net of unearned income and net of allowance for loan and lease losses) of $54 billion, and total deposits of $75 billion. Most of our loans and deposits are held in our regional banking and specialty banking segments. Most of our loans are commercial, and most of them are traditional, unsecured commercial, financial, and industrial loans, or “C&I” loans. The other two major loan portfolios are secured commercial real estate loans, or “CRE” loans, and secured consumer real estate loans. Table 1.3 provides an overview of our loan and deposit balances at December 31, 2021 or averaged over the year 2021.
Table 1.3
Loans & Deposits by Type
Loans1
Deposits2
Commercial79 %Savings37 %
Consumer21 %Time deposits%
Commercial PortfoliosOther interest22 %
C&I72 %Noninterest35 %
CRE28 %
Consumer Portfolios
Real estate92 %
Credit card/other%
1    Percentages at December 31, 2021; includes certain leases.
2    Percentages of average deposits for 2021.
Percentages may not add to 100% due to rounding.
The C&I portfolio, more than half of total loans, was $31 billion on December 31, 2021. Within C&I, about 26% of loans are to businesses in the financial services industry, including mortgage lending companies, with the rest in a wide range of industries, as shown in Table 1.4.
Table 1.4
C&I Loans1 by Line of Business
Mortgage lending companies15 %
Finance & Insurance11 %
Real estate rental & leasing%
Health care & social assistance%
Accommodation & food service%
Manufacturing%
Wholesale trade%
Retail trade%
Other C&I33 %
1     Percentages of C&I portfolio at December 31, 2021.
Percentages may not add to 100% due to rounding.

Geographically, a significant majority of our loans originate from five states: Tennessee, Florida, Louisiana, North Carolina, and Texas. The geographic dispersion of our loans varies considerably among our three major loan portfolios, as shown in Table 1.5.
Table 1.5
Major Loan Portfolios by Geography
C&I Loans ($31B)1
CRE Loans ($12B)1
Consumer RE Loans ($11B)1
Tennessee20 %Florida26 %Florida32 %
Florida12 %Texas12 %Tennessee23 %
Texas10 %North Carolina11 %Louisiana10 %
North Carolina%Louisiana10 %North Carolina%
Louisiana%Tennessee%Texas%
California%Georgia%New York%
Georgia%All other states24 %All other states15 %
All other states32 %
1    Dollars and percentages within each portfolio at December 31, 2021.

Further information regarding deposits and our other major sources of funding is provided in Notes 9, 10, and 11 beginning on pages 154, 155, and 156, respectively, appearing in our 2021 Financial Statements (Item 8), and
under the captions Deposits, Short-term Borrowings, and Term Borrowings beginning on pages 85, 86, and 86, respectively, of our 2021 MD&A (Item 7). Further information regarding our loans is provided in Note 4


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ITEM 1. BUSINESS
beginning on page 139 appearing in our 2021 Financial Statements (Item 8), and under the captions Analysis of Financial Condition and Asset Quality, beginning on pages 70 and 73, respectively, of our 2021 MD&A (Item 7).
Business Segments
Segment Overview
Our financial results of operations are reported through operational business segments which are not closely related to the legal structure of our subsidiaries. As a result of our recent merger of equals with IBERIABANK Corporation (see Significant Business Developments over Past Five Years in this Item 1 below), we changed our segments. Before the merger, we operated through four business segments: regional banking, fixed income, corporate, and non-strategic. Currently, we operate through three segments: regional banking, specialty banking, and corporate. In this report, segment information related to prior periods has been reclassified to conform with current segments.
Financial and other additional information concerning our segments—including information concerning assets, revenues, and financial results—appears in our 2021 MD&A (Item 7) and in our 2021 Financial Statements (Item 8), especially in Note 20—Business Segment Information. Note 20 begins on page 178.
Regional and Specialty Banking Segments
By far most of our loans and deposits are in the regional banking and specialty banking segments. Similarly, those segments are the sources of most of our revenues and expenses. The two segments create and use financial resources differently, and they generate different types of revenues. Most notably: regional banking provides a majority of our net interest income (mainly from lending), while specialty banking provides more noninterest income (mainly from fees). In addition, regional banking is larger than specialty banking by many financial measures. Table 1.6 provides high-level financial information for each of those two segments, highlighting these points.
Table 1.6
Regional vs Specialty Banking Snapshot
(Dollars in millions)RegionalSpecialty
2021 Average assets
$45,445 $20,803 
2021 Net interest income
$1,764 $619 
2021 Noninterest income
$438 $597 
2021 Pretax income
$1,280 $709 

Regional and Specialty Lines of Business
The principal lines of business in the regional banking segment are:
commercial banking (larger business enterprises)
business banking (smaller business enterprises)
consumer banking
private client and wealth management
The principal lines of business in the specialty banking segment are:
fixed income/capital markets
professional commercial real estate (Pro-CRE)
mortgage warehouse lending
asset-based (secured) lending
franchise finance
equipment finance
corporate banking
correspondent banking
mortgage origination and title services
Geographically, regional banking's businesses mainly serve our traditional markets associated with our banking center footprint. Many of the businesses within specialty banking have much broader geographic reach. For example: our fixed income business has offices from Hawaii to Massachusetts; and California is listed in Table 1.5 primarily because of specialty banking business lines.



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ITEM 1. BUSINESS
Services We Provide
At December 31, 2021, we provided the following services through our subsidiaries and divisions:
general banking services for consumers, businesses, financial institutions, and governments
fixed income sales and trading; underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; loan sales; advisory services; and derivative sales
mortgage banking services
title insurance and loan-closing services
brokerage services
correspondent banking
transaction processing: nationwide check clearing services and remittance processing
trust, fiduciary, and agency services
credit card products
equipment finance services
investment and financial advisory services
mutual fund sales as agent
retail insurance sales as agent
Information about the net interest income and noninterest income we obtained from our largest categories of products and services appears under the caption Results of Operations—2021 Compared to 2020 beginning on page 63 of our 2021 MD&A (Item 7).
Significant Business Developments Over Past Five Years
Selected Financial Data Past Five Years
Table 1.7 provides selected data concerning revenues, expenses, assets, liabilities, and shareholders’ equity for the past five years.
Table 1.7
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; financial condition data shown period-end, as of December 31)
20212020201920182017
Net interest income$1,994 $1,662 $1,210 $1,220 $842 
Provision for credit losses(310)503 45 (1)
Noninterest income1,076 1,492 654 723 490 
Net income available to common shareholders962 822 435 539 159 
Total loans and leases54,859 58,232 31,061 27,536 27,659 
Total assets89,092 84,209 43,311 40,832 41,423 
Total deposits74,895 69,982 32,430 32,683 30,620 
Total term borrowings1,590 1,670 791 1,171 1,218 
Total liabilities80,598 75,902 38,235 36,047 36,843 
Preferred stock 520 470 96 96 96 
Total shareholders’ equity8,494 8,307 5,076 4,785 4,580 

Priorities & Developments
Over the past five years, our strategic priorities have focused on:
targeted and opportunistic expansion of consumer and commercial banking products and markets;
targeted and opportunistic expansion of commercial lending, mainly through strategic and tactical transactions, talent development, and talent acquisitions;
rigorous expense management with continued investment in revenue generating initiatives;
managing business units and products with a strong emphasis on risk-adjusted returns on invested capital;
providing exceptional client service and experience as a primary means to differentiate us from competitors; and
investment in scalable technology and other infrastructure to attract and retain clients and to support expansion.
Examples of our implementation of these priorities include:


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ITEM 1. BUSINESS
In July 2020, we completed a merger of equals transaction with IBERIABANK Corporation and purchased 30 branches from Truist Bank, making 2020 a transformative year. See IBKC Merger of Equals and 30-Branch Acquisition in this Item below for additional information. In February 2022, we completed the main systems conversion work related to that merger.
As shown in Table 1.7, the COVID-19 pandemic caused us to recognize substantial provision for credit losses in 2020, and reduced our transaction volume and revenues. See the discussion captioned CECL Accounting and COVID-19 within Events Impacting Year-to-Year Comparisons, immediately below. In 2021, a large portion of that provision expense was effectively reversed, resulting in a provision credit for the year.
The pandemic also resulted in strong deposit growth in 2020 and 2021, despite interest rates being extremely low. We believe federal assistance and stimulus programs in 2020 and early 2021 significantly bolstered deposits in both years.
In 2017 we merged with Capital Bank Financial Corp., which had $10 billion of total assets and nearly 200 banking centers in four southern U.S. states. In another 2017 transaction, we acquired a national leader in trading, securitization, and analysis of Small Business Association loans.
We have made key talent hires in critical areas throughout our company, with the main focus on organically growing economically profitable business lines inside and outside our traditional markets.
Throughout this period, but especially in 2021, we have pruned and adapted our physical banking center network to reflect long-term trends in client usage of banking centers, and are making more efficient use of other physical facilities. Correspondingly, we have expanded and enhanced our digital banking products and services. These efforts are expected to continue.
Lending has been strong in certain specialty areas, such as lending to mortgage companies, where demand is strongly stimulated by the low interest rates in effect during this period.
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
In July 2020, we closed our merger of equals with IBERIABANK Corporation (“IBKC”). IBKC was the parent company of IBERIABANK based in Lafayette, Louisiana. At year-end 2019, IBKC had $31.7 billion of total assets—nearly 75% of our size at that time—and operated over 190 banking centers in 11 states: Louisiana, Texas, Arkansas, Tennessee, Mississippi, Alabama, Georgia, Florida, North and South Carolina, and New York. IBKC’s largest concentrations of banking centers were in Louisiana and Florida. We and IBKC offered many of the same financial services before the merger, but IBKC exceeded us in several areas, most notably in equipment financing, mortgage, and title services.
After closing, our board expanded to 17 directors, of which nine are from legacy First Horizon and eight are from legacy IBKC. IBKC shareholders collectively were issued 243 million First Horizon common shares (on a net basis).
Under applicable accounting guidance, none of the income or expense recognized by IBKC prior to the merger is included in our income or expense for 2020. As a result, our 2020 operating results consist of approximately two quarters of legacy First Horizon plus approximately two quarters of combined First Horizon and IBKC. In addition, operating results in 2020 were significantly affected by merger-related expenses and by two significant accounting impacts, described in Large Accounting Impacts from IBKC Merger below.
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North Carolina (20), Virginia (8), and Georgia (2) from SunTrust Bank (now Truist Bank). Those branches are in markets which we did not serve before July, or in which we did not have a leading market position. Along with the branch facilities, we acquired $0.4 billion of related loans and assumed $2.2 billion of deposits.
Large Accounting Impacts from IBKC Merger
Under applicable accounting guidance, closing the IBKC merger in July created two substantial impacts on our operating results for 2020. First, although we were required to record IBKC’s loans at fair value on the closing date, we also were required to recognize, as a provision for credit losses, an estimate of current expected credit losses for certain acquired loans. A similar process, with much smaller numbers, occurred for the loans associated with the 30-branch purchase. The overall incremental expense, recorded in third quarter 2020, was $147 million. Moreover, we were required to record, on a preliminary basis, a nontaxable purchase accounting gain from the merger of $533 million, driven by the stock market decline in 2020 associated with the COVID-19 pandemic. The net result of those two impacts was a $386 million uplift to our pretax income in 2020 unrelated to the ordinary operation of our businesses.
Expenses related to IBKC Merger
Closing the IBKC merger, integrating the business operations and systems, and making the changes necessary to achieve intended cost and other synergies resulted in substantial noninterest expenses in 2020 and


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ITEM 1. BUSINESS
in 2021. Additional significant expenses related to integration and optimization will be incurred in 2022.
Low Credit Loss Rates through 2019
During 2017-2019, our provision for credit losses was unusually low, though in 2019 it began to normalize. When provision is low, differences from year to year can be idiosyncratic, driven by just a few clients.
CECL Accounting and COVID-19
Starting in 2020, accounting guidance changed, requiring us to recognize “current expected credit loss” on all loans. The new guidance had the effect of accelerating, compared to prior guidance, the recognition of provision expense at times when general economic conditions deteriorate in a rapid manner. Starting in March 2020, government and public reaction to the COVID-19 pandemic caused substantial and rapid, and previously unexpected, business disruption and economic deterioration. Those events substantially changed our expectations for future credit loss and, accordingly, our provision was significantly elevated in 2020.
In 2021, we recognized net provision credit (negative expense) in the year overall, as a portion of credit loss accrued in 2020 was effectively reversed and underlying credit loss trends remained modest in most portfolios.
Fixed Income Volatility
In 2017 and 2018, market conditions were quite subdued for our fixed income business. Starting in 2019, however, increased market volatility and the downward direction of interest rates resulted in much higher trading volume and noninterest income in that business. In 2021, performance in fixed income started to moderate as market conditions started to change again, and we expect moderation to continue into 2022. See the Fixed Income discussion under Cyclicality within the Other Business Information section of this Item, which begins on page 18, for additional information.
Sale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings of Visa for a large gain, significantly increasing noninterest income that year.
Capital Bank Merger in 2017
Many year-end balance sheet figures (loans, deposits, etc.) increased substantially in 2017 due to the Capital Bank transaction. Full-year operating results were less noticeably impacted until 2018, because the Capital Bank transaction closed late in 2017.
Tax Reform in 2017
Corporate tax reform in December 2017 resulted in significant negative adjustments to net deferred tax asset
balance, driving a large net loss in fourth quarter that year. Financial results after 2017, in contrast, benefited significantly from lower tax rates compared to earlier years.
Monetary Policy Shifts
Although interest rates during each of these years were quite low by historical standards, short-term rates were raised in 2017 and 2018. Short-term rates were reduced in 2019 and again in 2020, the latter in response to the pandemic. An asset-buying program by the Federal Reserve put downward pressure on long-term interest rates as well, especially in 2020 and 2021. These changes impacted our net interest margin, raising and lowering it over this period. Net interest margin is a measure of the profit we make on loans and other earning assets in relation to our cost of deposits and other funding sources. Because funding costs cannot realistically fall below zero, the very low rate environment during 2020-21 resulted in historically low net interest margin levels for us.
During much of 2021, the Federal Reserve kept short-term rates low and maintained an asset-buying program intended to put downward pressure on long-term rates. Late in 2021, and continuing into 2022, the Federal Reserve has signaled that its asset-buying program will cease, that it expects to start raising short-term rates in reaction to price inflation experienced in the U.S. during much of 2021, and that it expects to reduce its asset holdings once buying has stopped.
Additional information concerning monetary policy and changes to it appears: within the Effect of Governmental Policies and Proposals section of Item 1 beginning on page 29; under the caption Risks Associated with Monetary Events beginning on page 38 within Item 1A; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 99.
Mortgage-Related Businesses
We lend to mortgage lending companies, we originate mortgage loans, and we provide title and related services that depend significantly on new and refinanced home mortgage activity. Lending to mortgage companies has been a significant business for us in all five years shown in Table 1.7, while the latter two businesses were insignificant for us until our merger with IBKC in 2020.
All three mortgage-related businesses benefited substantially from the recent low interest rate environment. As discussed above, we expect mortgage rates to rise in 2022, which should moderate revenues and income in all three businesses compared to 2021.



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Significant Trends Past Five Years
Noteworthy trends during these five years included:
Growth in net interest income was significant through 2018, driven by net loan growth, interest rate increases, and (in 2018) the Capital Bank merger. Growth flattened in 2019 as net loan growth, especially in mortgage warehouse lending, was offset by net interest margin declines. Margin declines continued in 2020 and 2021, though loan balances increased substantially with the IBERIABANK merger.
In 2017, an overall downward trend in noninterest income was due mainly to lower fixed income revenues, driven by challenging market conditions. The large increase in 2018 was mainly due to the Visa stock sale, along with an uptick following the Capital Bank merger. The 2017 downward trend reversed in 2019-21 as interest rates declined, market volatility increased, and fixed income revenues improved markedly. Also, 2020 and 2021 enjoyed a substantial increase in noninterest income following the IBERIABANK merger, especially in relation to consumer mortgage originations and related services.
The large deposit upticks in 2017 and 2020 were driven substantially by the Capital Bank, IBERIABANK, and 30-branch transactions. Also in 2020 and 2021, the federal Paycheck Protection Program (“PPP”) contributed to deposit growth as proceeds from PPP loans boosted average deposit account balances. Organic growth in deposits from core banking clients grew throughout this period, even when interest rates were extremely low. That core growth is masked in some years by our deliberate reductions in market-indexed deposits, which tend to be higher rate, and in other years by those large transactions.
Throughout 2020, and to a lesser extent in 2021, economic and business disruption related to the COVID-19 pandemic created substantial challenges for our clients and for our company. The disruptions in late 2021 from yet another new variant of the virus have continued in early 2022.
Exited Businesses
Over the past five years, we have focused primarily on regional banking and specialty banking products and services. We have partially or fully exited some smaller businesses during those years. Exited businesses are
managed in our corporate segment currently, and were managed in our non-strategic segment before 2020.

2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the
“First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 27, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).


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In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common
Stock in certain circumstances, including the closing of the Proposed TD Merger.
Additional information regarding the Proposed TD Merger, the TD Merger Agreement, and the issuance of Series G Convertible Preferred Stock will be included under Item 1.01 “Entry into a Material Definitive Agreement”, Item 3.02 “Unregistered Sales of Equity Securities”, Item 5.03 “Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year”, and Item 8.01 “Other Events” in a Current Report on Form 8-K to be filed by FHN after this report on Form 10-K is filed.
Competition
In all aspects of the businesses in which we engage, we face substantial competition from banks doing business in our markets as well as from savings and loan associations, credit unions, other financial institutions, consumer finance companies, trust companies, investment
counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other firms offering financial products or services.
Banking Competition
Our regional banking business primarily competes in those areas within the southern U.S. where we have banking center locations, summarized in Table 1.2. However, competition in our industry is trending away from the traditional geographic footprint model. That trend is happening throughout the industry, but the rate of change is highly uneven among different types of clients, products, and services. In our company, that trend is most evident in our specialty banking segment.
Our regional banking business serves both consumer and commercial clients. The consumer businesses remain strongly linked to our physical banking center locations, even as our delivery of financial services to consumers is increasingly focused on popular non-physical delivery methods, such as online and mobile banking. Online and mobile banking have contributed to a decline in banking center usage, but not (so far) an erosion of the link between banking center versus consumer client location. Increasingly, however, consumers are able to manage, through a single institution, their financial accounts at multiple institutions. Cross-institutional management features may contribute to a de-linking of consumers to physical banking center networks.
Our commercial businesses, especially in our specialty banking segment, also have a geographic linkage, but it is weaker. Some areas of specialty lending, such as franchise finance, mortgage warehouse lending, asset-based lending, and certain other specialty businesses (see Fixed Income Competition below) are multi-regional or national in scope rather than being heavily centered on banking center locations.
Key traditional competitors in many of our markets include Wells Fargo Bank N.A., Bank of America N.A., First-
Citizens Bank & Trust Company (dba First Citizens Bank), Synovus Bank, Truist Bank, Regions Bank, JPMorgan Chase Bank National Association, PNC Bank National Association, BankUnited, Hancock Whitney Bank, and Pinnacle Bank, among many others including many community banks and credit unions.
A number of recent technologies created or operated by non-banks have been integrated into the financial systems used by traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones. These sorts of incrementally evolutionary technologies often have expanded the market for banking services overall while siphoning a portion of the revenues from those services away from banks. Prior methods of delivering those services were disrupted, but often at a pace which all but the weakest banks could accommodate.
Recently, some evolutionary pressures have arisen which may prove to be less incremental and more disruptive. For example, in financial planning and wealth management, companies that are not traditional banks, including both long-established firms (such as Vanguard) and new ones (such as Betterment), have developed highly-interactive systems and applications. These services compete directly with traditional banks in offering personal financial advice. The low-cost, high-speed nature of these “robo-advisor” services can be especially attractive to younger, less-affluent clients and potential clients. We and other traditional banks offer similar services, but doing so risks cannibalizing traditional business models for these services.
In recent years, certain financial companies or their affiliates that traditionally were not banks have been able


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to compete more directly with the Bank for deposits and other traditional banking services and products. Increased fluidity across traditional boundaries is likely to continue. Non-traditional companies competing with us for traditional banking products and services include investment banks, brokerage firms, insurance company affiliates, peer-to-peer lending arrangers, non-bank deposit acceptors, companies offering payment
facilitation services (such as PayPal and pre-paid debit card issuers), and extremely short-term consumer loan companies. An example of a non-traditional company offering a broad range of financial services is SoFi, an online/mobile company in operation for about a decade, that recently was approved in the U.S. to become a bank.
Fixed Income Competition
Our fixed income business, which is part of our specialty banking segment, serves institutional clients, broadly segregated into depositories (including banks, thrifts, and credit unions) and non-depositories (including money managers, insurance companies, governmental units and agencies, public funds, pension funds, and hedge funds).
Both client groups are widely dispersed geographically, predominantly within the U.S. We have many competitors within both groups, including major U.S. and international securities firms as well as numerous regional and local firms.
Additional Information About Competition
For additional information on the competitive position of FHN and the Bank, refer to the General subsection above within this Item 1. Also, refer to the subsections entitled Supervision and Regulation and Effect of Governmental Policies, both of which are relevant to an analysis of our
competitors. Due to the intense competition in the financial services industry we can make no representation that our competitive position has or will remain constant, nor can we predict how it may change in the future.
Human Resources Management
Firstpower Culture
Our principal business is providing financial services to our clients. Although many financial services can be delivered through technology today, we believe that our clients’ experiences with our associates is a critical way we differentiate from our competitors. Specifically, we ask our associates to take advantage of every opportunity to anticipate client needs and exceed client expectations.
For this “differentiated experience” strategy to succeed, we must build and nurture a diverse and inclusive workplace culture that strives to attract, hire, and retain the best people available by compensating and, just as importantly, treating people fairly; ensure that associates have opportunities for professional growth and advancement within the company; support associates with appropriate workplace resources and training; promote constructive collegiality and a sense of workplace community; encourage innovation and the development of better ways to address business challenges; publicly recognize within the company associate achievements, both great and small; and promote behaviors that provide clients with best-in-class service. At First Horizon, we call that culture “Firstpower.”
We have evolved Firstpower as a part of our MOE to incorporate aspects of both organizations—expanded expertise, resources and geographic footprint—into the culture of our company. We have developed the following
Purpose, Promise and Principles to guide our associates on our core values and philosophies.
Our Purpose: First Horizon is a relationship-driven leading provider of financial solutions.
Our Promise: To strengthen the lives of our associates, clients and communities.
Our Principles:
Great Place To Work – offer a collaborative and inclusive workplace that promotes associate development, performance and success
Build Strong Relationships – exceed clients’ expectations by understanding their unique needs
Deliver Results – consistently deliver shareholder value
Give Back – invest in strategic partnerships to build strong communities
Fortitude – lead with integrity, accountability, agility, resilience and compassion
We use many tools and resources—programs, events, promotions, communication channels—to nurture and enhance our Firstpower culture. We focus on offering a variety of opportunities that promote mentoring, wellness, internships, diversity, inclusion, volunteering, informal shout-outs and formal recognitions, career


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management and continuing education, resource groups, and parental and care-giver support.
We believe that Firstpower is responsible for awards and recognitions we have received. Our recent recognitions have included: Forbes’ America’s Best Large Employers; Forbes’ World’s Best Banks; Fortune’s Best Workplaces in Finance and Insurance; National Association for Female Executives – Top 50 Companies for Executive Women; Dave Thomas’ Adoption-Friendly Workplaces; Diversity Best Practices Inclusion; and Bloomberg 2019 Gender-Equality Index.
In addition to our Firstpower culture, we have developed five strategic pillars for our Diversity, Equity and Inclusion
program that builds upon our track record of success, helps to ensure adoption throughout our organization, and defines a path for sustainable progress. We enable our DEI strategy through:
Ensuring representation of diverse talent
Strengthening leadership capabilities and accountability
Fostering inclusion and equality through fairness and transparency
Better serving diverse markets and clients
Investing in the well-being of communities
Year-End Statistical Information
At December 31, 2021*:
First Horizon had 7,867 associates, or 7,676 full-time-equivalent associates, not including contract labor for certain services:
69% white, 18% African American, 9% Hispanic, 2% Asian, and 2% two or more races or ethnicities
63% female and 37% male
Of those, First Horizon had 1,215 corporate managers:
79% white, 12% African American, 6% Hispanic, 2% Asian, and 1% two or more races or ethnicities
54% female and 46% male
Of the managers, First Horizon had the CEO and 9 members of the CEO's Executive Management Committee:
80% white, 10% African American, 0% Hispanic or Asian, and 10% two or more races or ethnicities
50% female and 50% male
__________
*    Data compiled from information provided by associates. Percentages may not add to 100% due to rounding.
Other Business Information
Strategic Transactions
An element of our business strategy is to consider acquisitions and divestitures that would enhance long-term shareholder value. Significant acquisitions and divestitures which closed during the past three years are described in Note 2 to our 2021 Financial Statements (Item 8), beginning on page 134 of this report.
The most significant transactions in the past five years are our merger of equals with IBKC in 2020 and our merger with Capital Bank Financial Corp. in 2017. IBKC’s assets comprised roughly three-sevenths of our combined assets immediately after closing in July 2020. Capital Bank’s
assets comprised roughly one-fourth of our combined assets immediately after closing in November 2017. We completed systems integration for the Capital Bank transaction in 2018, and we completed systems integration with IBKC in February 2022.
Other significant transactions include our purchase of 30 banking centers in July 2020, with over $2 billion of associated deposits, and our acquisition of Coastal Securities, Inc. in 2017, a leader in trading and securitizing SBA loans.
Subsidiaries
FHN’s consolidated operating subsidiaries at December 31, 2021 are listed in Exhibit 21. Technical and regulatory details follow:
The Bank is supervised and regulated as described in Supervision and Regulation in this Item below.
The Bank is a government securities dealer. The FHN Financial division of the Bank is registered with the SEC as a municipal securities dealer and the FHN
Financial Municipal Advisors division of the Bank is registered with the SEC as a municipal adviser.
Martin and Company, Inc., First Horizon Advisors, Inc., and FHN Financial Main Street Advisors, LLC are registered with the SEC as investment advisers.
First Horizon Advisors, Inc. and FHN Financial Securities Corp. are registered as broker-dealers with the SEC and all states where they conduct business for which registration is required.


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First Horizon Insurance Services, Inc., FHIS, Inc., First Horizon Insurance Agency, Inc., Lenders Title Company, United Title & Abstract L.L.C., and United Title of Louisiana, Inc. are licensed as insurance agencies in all states where they do business for which licensing is required. First Horizon Insurance Agency, Inc. and United Title & Abstract L.L.C. are inactive.
First Horizon Advisors, Inc. is licensed as an insurance agency in the states where it does business for which licensing is required for the sale of annuity products.
Our financial subsidiaries under the Gramm-Leach-Bliley Act are: FHIS, Inc.; FHN Financial Securities Corp.; First Horizon Advisors, Inc.; First Horizon Insurance Agency, Inc.; and First Horizon Insurance Services, Inc.
Client Concentration
Neither we nor any of our significant subsidiaries is dependent upon a single client or very few clients.
Calendar-Year Seasonality
We do not experience material seasonality. We do experience seasonal variation in certain revenues, expenses, and credit trends. Historically, these variations have somewhat increased certain expenses and diminished certain revenues for the regional and specialty banking segments, principally in the first quarter each year. In addition, we experience seasonal variation in certain asset and liability balances, principally in the
fourth quarter (consumer mortgages, related title services, commercial lending related to consumer mortgages, certain trading balances, and certain associate-related reserves) and first quarter (consumer mortgages, related title services, and commercial lending related to consumer mortgages).
Cyclicality
Banking
Financial services facilitate commercial and consumer economic activities in critical ways. In many key respects, modern financial services make modern types and volumes of economic activity possible. Put simply, we do well when our clients do well, and vice-versa. As a result, our banking business is broadly and strongly dependent on the size and strength of the U.S. economy.
Generally, when the U.S. economy is in an expansionary phase of the business cycle, our loan balances rise, income from lending tends to rise (assuming static interest rates and margins), credit losses tend to fall, and fee income tends to increase. In a contracting phase, those patterns tend to reverse. The impact of those factors on our operating results can be substantial, especially if they consistently move up or down at the same time.
Our traditional banking businesses are crucially dependent on the level of interest rates, whether federal monetary policy is easing or tightening, and on the shape of the interest rate yield curve. These factors also are cyclical, and are related in complex ways with the business cycle mentioned above.
These factors, and their impacts on us, often are mixed rather than consistently positive or negative. For example: low interest rates reduce the interest income we earn, reduce our costs of funding, tend to stimulate economic
activity and loan growth, and, through lower debt service, tend to ease financial pressure on clients, reducing default risk. If the yield curve remains relatively steep, with long-term interest rates noticeably higher than short rates, our net interest margin will tend not to be significantly compressed by the lower rate environment, since lower short rates will keep our deposit costs down while higher long rates will support the rates we can charge on lending. But if rates fall low enough (as they have in recent years), the yield curve will flatten and our margins will suffer. Moreover, the Federal Reserve tends to lower rates in response to, or to avoid, a weakening economy. Economic weakness tends to diminish client borrowing and other activities which benefit our performance.
Further information on these topics is presented: within Item 1A (which begins on page 31), in Risk from Economic Downturns and Changes, Risks Associated with Monetary Events, Liquidity and Funding Risks, and Interest Rate and Yield Curve Risks; and, within 2021 MD&A (Item 7), in Executive Overview (page 61), Interest Rate Risk Management (page 93), and Market Uncertainties and Prospective Trends (page 99).
Fixed Income
Our fixed income and capital markets business, reported as part of our specialty banking segment, is significantly affected by interest rate cycles which, in turn, are affected by general economic and business cycles.


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In broad terms, the typical impact of Federal Reserve interest and monetary policy on our fixed income business is summarized in Table 1.8.
Table 1.8
Typical Impact of Fed Policy on
Fixed Income Performance
Federal Reserve Policy Phase
TighteningNeutralEasing
Fixed Income Performance Tends to beWeakerAverageStronger
“Tightening” can include actions by the Federal Reserve to raise short-term interest rates, raise long-term rates, tighten credit, shrink the money supply, and decelerate economic activity. “Easing” can include actions by the Federal Reserve to lower short-term interest rates, lower long-term rates, loosen credit, expand the money supply, and accelerate economic activity. Expectations of policy actions can have impacts similar to the actions themselves.
In terms of tightening vs. easing, the Federal Reserve policy phase sometimes is clearly known, but sometimes is not. Although Federal Reserve actions at a given time can consistently support one phase, often they are a mix. For example, The Federal Reserve may want to flatten the yield curve by raising short-term rates while lowering long-term rates, or steepen the curve by taking the opposite actions. Also, major exogenous factors, such as the COVID-19 pandemic, can significantly impact the capital markets and the performance of our fixed income business. In broad terms, these relationships are summarized in Table 1.9.
Table 1.9
Key Drivers of
Fixed Income Performance
DriverIf Driver Is:FI Revenues Tend to Be:
Interest ratesRisingLower
FallingHigher
Market volatilityLowLower
ModerateHigher
Yield curveFlatterLower
SteeperHigher
Credit spreadsNarrowerLower
WiderHigher
Economy outlookPositiveLower
NegativeHigher
In many circumstances these drivers deliver mixed impacts on fixed income performance, with some pushing higher while others push lower, or with some drivers pushing weakly while others are stronger. If most or all drivers strongly push in the same direction at the same time, fixed income performance usually is strongly impacted. Revenue levels in a strongly “higher” year can be more than double what they are in a strongly “lower” year. As a result, fixed income performance can be highly variable from year to year.
Mortgage Origination and Related Services
The strength of consumer mortgage lending activity in the U.S. impacts three businesses of ours: mortgage origination and related services, title services, and commercial lending to other mortgage lenders.
Mortgage lending activity is strongly linked to interest rate cycles. Activity tends to be inversely related to prevailing mortgage rates: when rates are high, home-buying and refinancing decrease, and when rates are low, home-buying and refinancing increase. Moreover, expectations about near-term future mortgage rates can accelerate or delay those impacts, as borrowers rush to avoid future rate increases or wait for future rate decreases.
Market Outlook
The single most important market factor in 2022 for FHN likely will be when, and to what extent, short-term and long-term interest rates rise from the very low levels seen in 2020 and 2021. A key corollary will be how rate changes affect the shape of the yield curve. Early in 2022, when this report was prepared and filed, long-term rates in the markets have risen modestly in reaction to, and perhaps in anticipation of, Federal Reserve actions. FHN believes it is likely that the Federal Reserve will act to cause long and short rates to rise during the year, though FHN cannot predict the timing or degree of effectiveness of those actions.
Additional information concerning market uncertainties and trends appears in Market Uncertainties and Prospective Trends within 2021 MD&A (Item 7) beginning on page 99, especially under the captions Federal Reserve Policy in Transition and COVID-19 Pandemic.
Other Business Information Associated with this Report
For additional information concerning our business, refer to 2021 MD&A (Item 7).



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Business Information External to this Report
Our current primary internet address is www.firsthorizon.com. A link to the Investor Relations section of our internet website appears near the bottom of the home page of our website. Within the Investor Relations homepage there is a "Learn More" link associated with "SEC Filings." Clicking that link makes available to the public, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments
thereto as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission. Additional information regarding materials available on our website is provided in Item 10 of this report beginning on page 214. No information external to this report and its exhibits, unless specifically noted otherwise, is incorporated into this report.
Supervision and Regulation
Scope of this Section
This section describes certain of the material elements of the regulatory framework applicable to bank and financial holding companies and their subsidiaries, and to companies engaged in securities and insurance activities. It also provides certain specific information about us. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations, or regulatory policy may have a material effect on our business.
Overview
The Corporation
First Horizon Corporation is a bank holding company and financial holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”), and is registered with the Federal Reserve. We are subject to the regulation and supervision of, and to examination by, the Federal Reserve under the BHCA. We are required to file with the Federal Reserve annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA.
A bank holding company that is not a financial holding company is limited to engaging in “banking” and activities found by the Federal Reserve to be “closely related to banking.” Eligible bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in a broader range of activities that are “financial in nature.” See Financial Activities other than Banking within this Supervision and Regulation discussion below.
The Federal Reserve may approve an application by a bank holding company to acquire a bank located outside the acquirer’s principal state of operations without regard to whether the transaction is prohibited under state law, although state law may still impose certain requirements. See Interstate Branching and Mergers and Community Reinvestment Act (“CRA”), both within this Supervision and Regulation discussion below.
The Tennessee Bank Structure Act of 1974, among other things, prohibits (subject to certain exceptions) a bank holding company from acquiring a bank for which the
home state is Tennessee (a “Tennessee bank”) if, upon consummation, the company would directly or indirectly control 30% or more of the total deposits in insured depository institutions in Tennessee. As of June 30, 2021, the FDIC reports that the Bank held approximately 15% of such deposits.
The Bank
First Horizon Bank, our most significant subsidiary, is a Tennessee banking corporation subject to the regulation and supervision of, and to examination by, the TDFI. In addition to general supervision and examination powers, the TDFI has the power to approve mergers with the Bank, the Bank’s issuance of preferred stock or capital notes, the establishment of banking centers, and many other corporate actions.
The Bank has chosen to be a member of the Federal Reserve. As a result, the Federal Reserve is the Bank’s primary federal regulator. As a member, the Bank must buy and hold stock in its district Federal Reserve Bank equal to 6% of the Bank’s capital stock and surplus. The Bank is paid a dividend on its investment at a rate which varies with ten-year U.S. Treasury rates, capped at 6%. The Bank cannot sell its investment in Federal Reserve Bank stock, and the investment provides the Bank with no control over the Federal Reserve System.
Tennessee law requires the Bank, as a member of the Federal Reserve, to comply with federal capital and many other regulatory requirements in lieu of, or sometimes in addition to, state requirements. For that reason, this Supervision and Regulation section focuses on federal


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requirements for many topics related to the Bank, mentioning state requirements only where significant.
From 1864 until 2019, the Bank was a national banking association subject to the regulation and supervision of, and to examination by, the Office of the Comptroller of the Currency. In 2019, the Bank converted from a national bank to a Tennessee state bank. Conversion did not significantly alter the scope of the Bank’s activities: Tennessee law generally allows a Tennessee state bank to take any action that a Tennessee-based national bank could take.
The Bank is insured by, and subject to regulation by, the FDIC and is subject to regulation in certain respects by the CFPB. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged, limitations on the types of investments that may be made, activities
that may be engaged in, and types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition, several of the Bank’s subsidiaries are regulated separately, as discussed in Subsidiaries within this Item 1 under the Other Business Information discussion above, which begins on page 18.
In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control interest rates, money supply, and credit availability in order to influence the economy. Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing products or services.
The regulatory framework governing banks and the financial industry is intended primarily to protect depositors and the Federal Deposit Insurance Fund, not to protect our Bank or our security holders.
Regulatory Tiers Based on Asset Size
Many rules dealing with critical regulatory topics divide banks into tiers based largely or entirely on asset size. Different topics have different cut-off points for the tiers. Within each topic, different rules apply to the different tiers.
Cut-off points vary significantly. However, as a rough generalization, for many regulatory topics the critical cut-off points are $10 billion, $100 billion, and $250 billion. Companies with less than $10 billion are less regulated in several important ways than we are, and companies with
$250 billion or more are regulated much more severely in many important ways than we are. As a result, under current law, compliance costs and restrictions grow with size, they tend to change abruptly as a company crosses to the next tier, and we are in a middle tier in many respects.
The remainder of this Supervision and Regulation discussion focuses on current rules which apply to FHN based on our current asset size.
Large-Bank Supervision Risk Categories
Federal regulators have established four risk-based categories for applying enhanced prudential standards (enhanced for larger banks). Category I applies to the global systemically important companies. Categories II, III, and IV apply (with certain exceptions) to institutions with total consolidated assets of at least $700 billion, $250
billion, and $100 billion, respectively. Currently, we and the Bank are below Category IV’s floor and therefore, generally, we are not subject to enhanced prudential standards.
Payment of Dividends
First Horizon Corporation is a legal entity separate and distinct from First Horizon Bank and other subsidiaries. Our principal source of cash flow, including cash flow to pay dividends on our stock or to pay principal (including premium, if any) and interest on debt securities, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to us, as well as by us to ours shareholders.
The Corporation
Under Tennessee corporate law, we are not permitted to pay cash dividends if, after giving effect to such payment, we would not be able to pay our debts as they become
due in the usual course of business or our total assets would be less than the sum of our total liabilities plus any amounts needed to satisfy any preferential rights if we were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, our Board must consider our current and prospective capital, liquidity, and other needs, including the needs of the Bank which we are obligated to support.
The Bank
Under Tennessee corporate law, the Bank (like the Corporation, discussed above) may not pay a dividend if the Bank would not be able to pay its debts when due or if


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the Bank’s assets would be inadequate, in a dissolution, to pay liabilities and preferential rights. Similarly, the Bank’s Board must consider current and prospective needs in making a decision to declare a dividend.
In addition, in order to pay cash dividends, the Bank must obtain the prior approval of the Federal Reserve and the TDFI Commissioner if the total of all dividends declared by the Bank’s board of directors in any calendar year exceeds the total of (i) the Bank’s retained net income for that year plus (ii) the Bank’s retained net income for the preceding two years, less certain required capital transfers, as applicable. Below that ceiling, approval generally is not required (but see Other Factors Affecting Dividends immediately following this discussion). Applying the dividend restrictions imposed under applicable federal and state rules, the Bank’s total amount available for dividends, without obtaining regulatory approval, was $1.1 billion at January 1, 2022. The application of those restrictions to the Bank is discussed in more detail in the following sections, all of which is incorporated into this Item 1 by reference: under the caption Liquidity Risk Management in our 2021 MD&A (Item 7) beginning on page 95 of this report; and under the caption Restrictions on dividends in Note 13—Regulatory Capital and Restrictions of our 2021 Financial Statements (Item 8), beginning on page 159.
Other Factors Affecting Dividends
If, in the opinion of the Federal Reserve, we or the Bank are engaged in or about to engage in an unsafe or unsound practice (which, depending on the financial condition of FHN or the Bank, could include the payment of dividends), the Federal Reserve may require us or the Bank to cease and desist from that practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s or holding
company’s capital base to an inadequate level would be an unsafe and unsound banking practice.
In addition, under the Federal Deposit Insurance Act, an FDIC-insured depository institution (such as the Bank) may not make any capital distributions, pay any management fees to its holding company, or pay any dividend if it is undercapitalized or if such payment would cause it to become undercapitalized.
The payment of cash dividends by us or by the Bank also may be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines and requirements imposed by debt covenants. For example, as discussed under Capital Adequacy within this Supervision and Regulation discussion below, our ability to pay dividends would be restricted if its capital ratios fell below minimum regulatory requirements plus a capital conservation buffer.
The Federal Reserve generally requires insured banks and bank holding companies to pay dividends only out of current operating earnings. The Federal Reserve has released a supervisory letter advising, among other things, that a bank holding company should inform the Federal Reserve and should eliminate, defer, or significantly reduce its dividends if (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the bank holding company’s prospective rate of earnings is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Transactions with Affiliates
The Bank’s ability to lend or extend credit to its parent company or nonbank subsidiaries (including for purposes of this paragraph, in certain situations, subsidiaries of the Bank) is restricted. The Bank and its subsidiaries generally may not extend credit to us or to any other affiliate in an amount which exceeds 10% of the Bank’s capital stock and surplus and may not extend credit in the aggregate to us and all such affiliates in an amount which exceeds 20% of its capital stock and surplus. Extensions of credit and other transactions between the Bank and us or such other affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the Bank as those prevailing at the time for comparable transactions with non-affiliated companies. Further, the type, amount, and quality of
collateral which must secure such extensions of credit is regulated.
There are similar legal restrictions on: the Bank’s purchases of or investments in the securities of and purchases of assets from us or our nonbank subsidiaries; the Bank’s loans or extensions of credit to third parties collateralized by the securities or obligations of us or our nonbank subsidiaries; the issuance of guaranties, acceptances, and letters of credit on behalf of us or our nonbank subsidiaries; and certain bank transactions with us or our nonbank subsidiaries, or with respect to which we or our nonbank subsidiaries act as agent, participate, or have a financial interest.



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ITEM 1. BUSINESS
Capital Adequacy
Federal financial industry regulators require that regulated institutions maintain minimum capital levels. The capital rules in the U.S. are based on international standards known as “Basel III.” Those U.S. rules require the following:
Common Equity Tier 1 Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Common Equity Tier 1 Capital to risk-weighted assets (“Common Equity Tier 1 Capital ratio”) must be at least 4.5%. To be “well capitalized” the Common Equity Tier 1 Capital ratio must be at least 6.5%. Common Equity Tier 1 Capital consists of core components of Tier 1 Capital. The core components consist of common stock plus retained earnings net of goodwill, other intangible assets, and certain other required deduction items. At December 31, 2021, our Common Equity Tier 1 Capital Ratio was 9.92% and the Bank’s was 10.75%.
Tier 1 Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Tier 1 Capital to risk-weighted assets must be at least 6%. To be “well capitalized” the Tier 1 Capital ratio must be at least 8%. Tier 1 Capital consists of the Tier 1 core components discussed in the bulleted paragraph immediately above, plus non-cumulative perpetual preferred stock, a limited amount of minority interests in the equity accounts of consolidated subsidiaries, and a limited amount of cumulative perpetual preferred stock, net of goodwill, other intangible assets, and certain other required deduction items. At December 31, 2021, our Tier 1 Capital Ratio was 11.04% and the Bank’s was 11.22%.
Total Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Total Capital to risk-weighted assets must be at least 8%. To be “well capitalized” the Total Capital ratios must be at least 10%. At December 31, 2021, our Total Capital Ratio was 12.34% and the Bank’s was 12.41%.
Capital Conservation Buffer. If a capital conservation buffer of an additional 2.5% above the minimum required Common Equity Tier 1 Capital ratio, Tier 1 Capital ratio, and Total Capital ratio is not maintained, special restrictions would apply to capital distributions, such as dividends and stock repurchases, and on certain compensatory bonuses.
Leverage Ratio—Base. For all supervised financial institutions, including us or the Bank, the Leverage ratio must be at least 4%. To be “well capitalized” the Leverage ratio must be at least 5%. The Leverage ratio is Tier 1 Capital divided by quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. At December 31,
2021, our Leverage ratio was 8.08% and the Bank’s was 8.20%.
Leverage Ratio—Supplemental. For the largest internationally active supervised financial institutions, not including us or the Bank, a minimum supplementary Leverage ratio must be maintained that takes into account certain off-balance sheet exposures.
We believe that we and the Bank were in compliance with applicable minimum capital requirements as of December 31, 2021.
Federal regulators have incorporated market and interest-rate risk components into its risk-based capital standards. Those standards explicitly identify concentration of credit risk and certain risks arising from non-traditional activities, and the management of such risks, as important qualitative factors to consider in assessing an institution’s overall capital adequacy.
Federal regulators’ market risk rules are applicable to covered institutions—those with aggregate trading assets and trading liabilities of at least 10% of their total assets or at least $1 billion. We and the Bank are covered institutions under the rule. The rules specify the methodology for calculating the amount of risk-weighted assets related to trading assets and include, among other things, the addition of a component for stressed value at risk. The rule eliminates the use of credit ratings in calculating specific risk capital requirements for certain debt and securitization positions. Alternative standards of creditworthiness are used for specific standardized risks, such as exposures to sovereign debt, public sector entities, other banking institutions, corporate debt, and securitizations. In addition, an 8% capital surcharge applies to certain covered institutions, not including us or the Bank.
Moreover, the Federal Reserve has indicated that it considers a “Tangible Tier 1 Capital Leverage Ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.
Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business and in certain circumstances to the appointment of a conservator or receiver. See Prompt Corrective Action (PCA) immediately below for additional information.
In addition, the Bank is required to have a capital structure that the TDFI determines is adequate, based on TDFI’s assessment of the Bank’s businesses and risks. The TDFI may require the Bank to increase its capital, if found to be inadequate.


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Prompt Corrective Action (PCA)
Federal banking regulators must take “prompt corrective action” regarding FDIC-insured depository institutions that do not meet minimum capital requirements. For this purpose, insured depository institutions are divided into
five capital categories. The specific requirements applicable to us are summarized in Table 1.10.
Table 1.10
REQUIREMENTS FOR PCA CAPITALIZATION CATEGORIES
Well capitalized
Common Equity Tier 1 Capital ratio of at least 6.5%
Tier 1 Capital ratio of at least 8%
Total Capital ratio of at least 10%
Leverage ratio of at least 5%
Not subject to a directive, order, or written agreement to meet and maintain specific capital levels
Adequately capitalized
Common Equity Tier 1 Capital ratio of at least 4.5%
Tier 1 Capital ratio of at least 6%
Total Capital ratio of at least 8%
Leverage ratio of at least 4%
Not subject to a directive, order, or written agreement to meet and maintain specific capital levels
UndercapitalizedFailure to maintain any requirement to be adequately capitalized
Significantly UndercapitalizedFailure to maintain Common Equity Tier 1 Capital ratio of at least 3%, Tier 1 Capital ratio of at least 4%, Total Capital ratio of at least 6%, or a Leverage ratio of at least 3%
Critically UndercapitalizedFailure to maintain a level of tangible equity equal to at least 2% of total assets

At December 31, 2021, the Bank had sufficient capital to qualify as “well capitalized” under the regulatory capital requirements discussed above. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. Institutions generally are not allowed to publicly disclose examination results.
An FDIC-insured depository institution generally is prohibited from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. An insured depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, for the plan to be accepted by the applicable federal regulatory authority. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator, generally within 90 days of the date on which they become critically undercapitalized.
Liquidity Coverage Ratio
The liquidity coverage ratio, or LCR, refers to the amount of liquid assets (cash, cash equivalents, or short-term securities) banks are required to keep on hand to meet a hypothetically projected total net cash outflows over a forward-looking 30-day period of stress. The stressed outflow estimate is based a standard set of hypothetical assumptions set forth in regulatory requirements. The LCR
is designed to ensure banks hold a buffer of high-quality liquid assets so that they can meet their short-term liquidity needs and remain stable and strong in a stressed environment. Liquid assets generally provide low income levels compared to other investments, so a higher LCR requirement can negatively impact a bank's earnings.



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The LCR requirement does not apply to institutions with assets of less than $100 billion, and so does not apply to us or the Bank. For larger institutions, the minimum LCR requirement increases based on a bank’s asset size.
Category IV banks, with at least $100 billion in assets, are not subject to LCR requirements unless they have at least $50 billion in weighted short-term wholesale funding.
Holding Company Structure and Support of Subsidiary Banks
Because we are a holding company, our right to participate in the assets of any subsidiary upon the latter’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors (including depositors in the case of the Bank), except to the extent that we may be a creditor with recognized claims against the subsidiary. In addition, depositors of a bank, and the FDIC as their subrogee, would be entitled to priority over the other creditors in the event of liquidation of the bank.
Under Federal Reserve policy we are expected to act as a source of financial strength to, and to commit resources to
support, the Bank. This support may be required at times even if, absent such Federal Reserve policy, we might not wish to provide it. In addition, any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Cross-Guarantee Liability
A depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution “in danger of default.” “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC’s claim for damages is superior to claims of shareholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors, and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution.
Currently the Bank is our only depository institution subsidiary. If we were to own or operate another depository institution, any loss suffered by the FDIC in respect of one subsidiary bank would likely result in assertion of the cross-guarantee provisions, the assessment of estimated losses against our other subsidiary bank(s), and a potential loss of our investment in our subsidiary banks.
Interstate Branching & Mergers
As mentioned above, the Bank generally must have TDFI’s approval to establish a new banking center (technically, a “branch”). For a new banking center located outside of Tennessee, Tennessee law requires the Bank to comply with branching laws applicable to the state where the new banking center will be located. Federal law allows the Bank to establish or acquire a branch in another state to the same extent as a bank chartered in that other state would be allowed to establish or acquire a branch in Tennessee.
For an interstate merger or acquisition: the acquiring bank must be well-capitalized and well-managed; concentration limits on liabilities and deposits may not be
exceeded; regulators must assess the transaction for incremental systemic risk; and the acquiring bank must have at least “satisfactory” standing under the federal Community Reinvestment Act (discussed immediately below).
Once a bank has established branches in a state through de novo or acquired branching or through an interstate merger transaction, the bank may then establish or acquire additional branches within that state to the same extent that a bank chartered in that state is allowed to establish or acquire branches within the state.
Community Reinvestment Act (“CRA”)
The CRA requires each U.S. bank, consistent with safe and sound operation, to help meet the credit needs of each community where the bank accepts deposits, including low- and moderate-income (“LMI”) communities. The Federal Reserve assesses the Bank periodically for CRA
compliance, and that assessment is made public. The Bank’s LMI operations and activities traditionally are critical focal points in those assessments.
A CRA rating below “satisfactory” can slow or halt a bank’s plans to expand by branching, acquisition, or merger, and


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ITEM 1. BUSINESS
can prevent a bank holding company from becoming a financial holding company. In its most recent CRA assessment, for 2020, the Bank received ratings of "High
Satisfactory" in Lending and in Service, "Outstanding" in Investment, and "Satisfactory" overall.
Financial Activities other than Banking
Federal Law
Federal law generally allows financial holding companies broad authority to engage in activities that are financial in nature or incidental to a financial activity. These include: insurance underwriting and brokerage; merchant banking; securities underwriting, dealing, and market-making; real estate development; and such additional activities as the Federal Reserve in consultation with the Secretary of the Treasury determines to be financial in nature or incidental. A bank holding company may engage in these activities directly or through subsidiaries by qualifying as a “financial holding company.” To qualify as a financial holding company, a bank holding company must file an initial declaration with the Federal Reserve, certifying that all of its subsidiary depository institutions are well-managed and well-capitalized.
Federal law also permits banks to engage in certain of these activities through financial subsidiaries. To control or hold an interest in a financial subsidiary, a bank must meet the following requirements:
(1)    The bank must receive approval from its primary federal regulator for the financial subsidiary to engage in the activities.
(2)    The bank and its depository institution affiliates must each be well-capitalized and well-managed.
(3)    The aggregate consolidated total assets of all of the bank’s financial subsidiaries must not exceed the lesser of: 45% of the bank’s consolidated total assets; or $50 billion (subject to indexing for inflation).
(4)    The bank must have in place adequate policies and procedures to identify and manage financial and operational risks and to preserve the separate identities and limited liability of the bank and the financial subsidiary.
(5)    If the bank is among the 100 largest banks, the bank must meet the long-term debt rating or alternative
standards adopted by the Federal Reserve and the U.S. Secretary of the Treasury from time to time. If this fifth requirement ceases to be met after a bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met.
No new activity may be commenced unless the bank and all of its depository institution affiliates have at least “satisfactory” CRA ratings. Certain restrictions apply if the bank holding company or the bank fails to continue to meet one or more of the requirements listed above.
In addition, federal law contains a number of other provisions that may affect the Bank’s operations, including limitations on the use and disclosure to third parties of client information.
At December 31, 2021, we are a financial holding company and the Bank has a number of financial subsidiaries, as discussed in Subsidiaries within this Item 1 under the Other Business Information discussion, which begins on page 18.
Tennessee Law
Tennessee law does not expressly restrict the activities of a bank holding company or its non-bank affiliates. However, no Tennessee bank may maintain a branch office on the premises of an affiliate if the affiliate is engaged in activities that are not permissible for a bank holding company, a financial holding company, a national bank, or a national bank subsidiary under federal law. Tennessee law permits Tennessee banks to establish subsidiaries and to engage in any activities permissible for a national bank located in Tennessee, subject to compliance with Tennessee regulations relating to the conduct of such activities for the purpose of maintaining bank safety and soundness.
Interchange Fee Restrictions
Regulations severely cap interchange fees which the Bank may charge merchants for debit card transactions.
Volcker Rule
The Volcker rule (1) generally prohibits banks from engaging in proprietary trading, which is engaging as principal (for the bank’s own account) in any purchase or sale of one or more of certain types of financial
instruments, and (2) limits banks’ ability to invest in or sponsor hedge funds or private equity funds.



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ITEM 1. BUSINESS
Consumer Regulation by the CFPB
The CFPB adopts and administers significant rules affecting consumer lending and consumer financial services. Key rules for the Bank include detailed regulation of mortgage servicing practices and detailed regulation of mortgage origination and underwriting practices. The latter rules, among other things, establish the definition of
a “qualified mortgage” using traditional underwriting practices involving down payments, credit history, income levels and verification, and so forth. The rules do not prohibit, but do tend to discourage, lenders from originating non-qualified mortgages.
Data Security & Portability
Security & Privacy
Federal law requires banks to implement a comprehensive information security program that includes administrative, technical, and physical safeguards. Banks are required to have appropriate data governance practices and risk management processes as key functions supporting its operational resilience.
Data privacy and protection increasingly is a significant legislative, regulatory, and societal concern. The concern is driven by major technological and societal shifts in the past 20 years, led by relatively unregulated firms such as Amazon.com, Alibaba, Facebook, and Google and their many clients worldwide. Those firms have gathered large amounts of personal details about millions of people, and today have the ability to analyze that data and act on that analysis very quickly. These firms seek to understand enough about a person to know what a person wants before the person does.
Banks (as mentioned above) already are subject to significant privacy regulations. Probably for that reason, the banking industry is not at the political center of these concerns today. Even so, banks are likely to be affected by broader legislative and regulatory responses to the perceived problems. Two prominent responses to date
include the European Union General Data Protection Regulation and the California Data Privacy Protection Act. Neither is a banking industry regulation, but both apply to banks in relation to certain clients. To date, neither has had a material impact on the Bank.
Portability & Client Control
Federal law restricts the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact clients with marketing offers. Affiliate and non-affiliate sharing initiated by the Bank generally is permitted with client consent.
Increasingly, banks are being required to permit, enable, and support client control of client data, including the sharing of client data with Bank affiliates and with outside organizations. These requirements, which still are evolving, are intended to foster data portability for clients and greater competition among financial services firms. However, they also significantly increase data security risks because they create additional access channels for bad actors to try to exploit, or they make accessing existing channels easier or faster.
FDIC Insurance Assessments; DIFA
U.S. bank deposits generally are insured by the Deposit Insurance Fund (“DIF”), administered by the FDIC. The system of FDIC insurance premium rates charged consists of a rate grid structure in which base rates range from 5 to 35 basis points annually, and fully adjusted rates range from 2.5 to 45 basis points annually. (A basis point is equal to 0.01%.) Key factors in the grid include: the institution’s risk category (I to IV); whether the institution is deemed large and highly complex; whether the institution qualifies for an unsecured debt adjustment; and whether the institution is burdened with a brokered deposit
adjustment. Other factors can impact the base against which the applicable rate is applied, including (for example) whether a net loss is realized.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by a federal bank regulatory agency.
Depositor Preference
Federal law provides that deposits and certain claims for administrative expenses and associate compensation against an insured depository institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in the “liquidation or other resolution” of such an institution by any receiver.


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ITEM 1. BUSINESS
Securities Regulation
Certain of our subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate.
Our registered broker-dealer subsidiaries are subject to the SEC’s net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with
the rule could limit operations that require intensive use of capital, such as underwriting and trading.
Certain of our subsidiaries are registered investment advisers which are regulated under the Investment Advisers Act of 1940. Advisory contracts with clients automatically terminate under these laws upon an assignment of the contract by the investment adviser unless appropriate consents are obtained.
Insurance Activities
Certain of our subsidiaries sell various types of insurance as agent in a number of states. Insurance activities are subject to regulation by the states in which such business is transacted. Although most of such regulation focuses on insurance companies and their insurance products,
insurance agents and their activities are also subject to regulation by the states, including, among other things, licensing and marketing and sales practices.
Compensation & Risk Management
The Federal Reserve has issued guidance intended to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. The guidance is based on three “key principles” calling for incentive compensation plans to: appropriately balance risks and rewards; be compatible with effective controls and risk management; and be backed up by strong corporate governance. In response: we operate an enhanced risk management process for assessing risk in incentive compensation plans; several key incentive programs use a net profit approach rather than a revenues-only approach; and mandatory deferral features are used in several key programs, including an executive program.
In 2016 federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The
proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm. In the 2016 proposal, the top two tiers included institutions with more than $50 billion of assets. We and the Bank currently would fall into the lower of those top two tiers. However, prompted by post-2016 legislation which significantly raised several statutory asset-size tiers, if this proposal were finalized today, the $50 billion floor might be raised significantly, allowing us to remain in the third tier. We cannot predict what final rules may be adopted, nor how they may be implemented.
Effect of Government Policies & Proposals
The Bank is affected by the policies of regulatory authorities, including the Federal Reserve, the TDFI, and the CFPB. See Supervision and Regulation beginning on page 21 for additional information.
The Federal Reserve also sets and manages monetary policy for the U.S. In this latter role, the Federal Reserve’s mandate from Congress is to pursue price stability and full employment.
Among the instruments of monetary policy used by the Federal Reserve are: purchases and sales of U.S. government and other securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; changes in the reserve requirements of
depository institutions; changes in the rate paid on banks’ required and excess reserve deposits at the Federal Reserve; and changes in the federal funds rate, which is the rate at which depository institutions lend balances to each other overnight. These instruments are intended to influence economic and monetary growth, interest rate levels, and inflation.
The monetary policies of the Federal Reserve and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the national and international economies and in the money markets, as well as the result of actions by monetary and fiscal authorities, it is not possible to predict with certainty future changes in


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ITEM 1. BUSINESS
interest rates, deposit levels, loan demand, or the business and results of our operations, or whether changing economic conditions will have a positive or negative effect on operations and earnings. Additional information concerning monetary policy changes appears: under the caption Monetary Policy Shifts within the Significant Business Developments section of Item 1, which begins on page 12; under the caption Risks Associated with Monetary Events beginning on page 38 within Item 1A; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), which begins on page 99.
Bills occasionally are introduced in the United States Congress, the Tennessee General Assembly and other state legislatures, and regulations occasionally are proposed by our regulatory agencies, any of which could affect our businesses, financial results, and financial condition.
We are not able to predict what, if any, changes that Congress, state legislatures, or the regulatory agencies will enact or implement in the future, nor the impact that those actions will have upon us.
Sources & Availability of Funds
Information concerning the sources and availability of funds for our businesses can be found in our 2021 MD&A (Item 7), including the subsection entitled Liquidity Risk Management beginning on page 95, which material is incorporated herein by reference.


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ITEM 1A. RISK FACTORS
Item 1A.    Risk Factors
This Item outlines specific risks that could affect the ability of our various businesses to compete, change our risk profile, or materially impact our operating results or financial condition. Our operating environment continues to evolve and new risks continue to emerge. To address that challenge we have a risk management governance structure that oversees processes for monitoring evolving risks and oversees various initiatives designed to manage and control our potential exposure.
This Item highlights risks that could impact us in material ways by causing future results to differ materially from
past results, by causing future results to differ materially from current expectations, or by causing material changes in our financial condition. In this Item we have outlined risks that we believe are important to us at the present time. However, other risks may prove to be important in the future, and new risks may emerge at any time. We cannot predict all potential developments that could materially affect our financial performance or condition.

TABLE OF ITEM 1A TOPICS
TopicPageTopic Page
Risks related to the Proposed TD MergerRegulatory, Legislative, and Legal Risks
Traditional Competition RisksRisks of Expense Control
Traditional Strategic & Macro RisksGeographic Risks
Industry DisruptionInsurance
Operational RisksLiquidity & Funding Risks
Risks from Economic Downturns & ChangesCredit Ratings
Risks Associated with Monetary EventsInterest Rate & Yield Curve Risks
Risks Related to Businesses We May ExitAsset Inventories & Market Risks
Reputation RisksMortgage Business Risks
Credit RisksPre-2009 Mortgage Business Risks
Service RisksAccounting & Tax Risks
Risks related to COVID-19 PandemicShare Owning & Governance Risks

Risks Related to the Proposed TD Merger
The announcement and pendency of the Proposed TD Merger may adversely affect our business, financial condition, and results of operations. Uncertainty about the effect of the Proposed TD Merger on our associates, clients, and other parties may have an adverse effect on our business, financial condition, and results of operations regardless of whether the Proposed TD Merger is completed. These risks to our business include, among others, the following, all of which may be exacerbated by a delay in the completion of the Proposed TD Merger: (i) the impairment of our ability to attract, retain, and motivate its employees; (ii) the diversion of significant management time and attention from ongoing business operations towards the completion of the Proposed TD Merger; (iii) difficulties maintaining relationships with clients, suppliers and other business partners; (iv) delays or deferments of certain business decisions by our clients, suppliers and other business partners; (v) the inability to pursue alternative business opportunities or make
appropriate changes to our business because the TD Merger Agreement requires us to, subject to certain exceptions, conduct its business in the ordinary course of business and to not engage in certain kinds of transactions prior to the completion of the Proposed TD Merger without the prior written consent of TD (such consent not to be unreasonably conditioned, withheld or delayed), even if such actions could prove beneficial; (vi) litigation relating to the Proposed TD Merger and the costs and uncertainties related thereto; and (vii) the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the Proposed TD Merger.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated. Before the Proposed TD Merger may be completed, various approvals, consents, and non-objections must be obtained from the Federal


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Reserve and various other bank regulatory, antitrust, and other authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to: an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally. The Federal Reserve has stated that if material weaknesses are identified by examiners before a banking organization applies to engage in expansionary activity, the Federal Reserve will expect the banking organization to resolve all such weaknesses before applying for such expansionary activity. The Federal Reserve has also stated that if issues arise during the processing of an application for expansionary activity, it will expect the applicant banking organization to withdraw its application pending resolution of any supervisory concerns.
The approvals that are granted may impose terms and conditions, limitations, obligations, or costs, or may place restrictions on the conduct of the combined company’s business, or may require changes to the terms of the transactions contemplated by the TD Merger Agreement and related bank merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the TD Merger Agreement and Bank Merger Agreement, imposing additional material costs on us. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Proposed TD Merger. Additionally, the completion of the Proposed TD Merger is conditioned on the absence of certain orders, injunctions, or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the TD Merger Agreement and related bank merger agreement.
In addition, despite the parties’ commitments to use their reasonable best efforts to comply with conditions imposed by regulators, under the terms of TD Merger Agreement and related bank merger agreement, neither us nor TBD will be required, and neither party will be permitted without the prior written consent of the other party, to take actions or agree to conditions that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the mergers.
The TD Merger Agreement may be terminated in accordance with its terms, and the Proposed TD Merger may not be completed. The TD Merger Agreement is
subject to a number of conditions which must be fulfilled in order to complete the Proposed TD Merger. Those conditions include: (i) the approval of the Proposed TD Merger by the requisite vote of our shareholders; (ii) the receipt of all required regulatory approvals which are necessary to close the Proposed TD Merger and the expiration of all statutory waiting periods without the imposition of any materially burdensome regulatory condition; (iii) the absence of any order, injunction, decree, or other legal restraint preventing the completion of the Proposed TD Merger or any of the other transactions contemplated by the TD Merger Agreement or by the related bank merger agreement, or making the completion of the Proposed TD Merger illegal; (iv) subject to certain exceptions, the accuracy of the representations and warranties of each party, generally subject to a material adverse effect qualification; and (v) the prior performance in all material respects by each party of the obligations required to be performed by it at or prior to the closing date.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the Proposed TD Merger may not be completed. In addition, the parties can mutually decide to terminate TD Merger Agreement at any time, before or after shareholder approval. Also, either TD or we may elect unilaterally to terminate the TD Merger Agreement in certain circumstances.
Failure to complete the Proposed TD Merger could negatively impact us. If the Proposed TD Merger is not completed for any reason, including as a result of our shareholders failing to approve the Proposed TD Merger or as a result of failure to obtain all needed regulatory approvals, there may be various adverse consequences and we may experience negative reactions from the financial markets and from our clients and associates.
For example, our business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Proposed TD Merger. Additionally, if the TD Merger Agreement is terminated, the market price of our common stock could decline because, after announcement of the Proposed TD Merger, we expect our market price to reflect the consideration to be paid under the TD Merger Agreement; a termination of the Proposed TD Merger would likely have a negative effect on our market price. We also could be subject to litigation related to any failure to complete the Proposed TD Merger or to proceedings commenced against us to perform our obligations under the TD Merger Agreement. If the TD Merger Agreement is terminated under certain circumstances, we may be required to pay to TD a termination fee of up to $435.5 million.
Additionally, we expect to incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the TD Merger Agreement and related bank merger agreement, as well as the costs


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and expenses of preparing, filing, printing, and mailing a proxy statement, and all filing and other fees paid in connection with the Proposed TD Merger. If the Proposed TD Merger is not completed, we would have to pay a large portion of these expenses without realizing the expected benefits of the Proposed TD Merger.
We will be subject to business uncertainties and contractual restrictions while the Proposed TD Merger is pending. Uncertainty about the effect of the Proposed TD Merger on associates and clients may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Proposed TD Merger is completed, and could cause clients and others that deal with us to seek to change existing business relationships with us. In addition, subject to certain exceptions, we have agreed to operate our business in the ordinary course prior to the closing, and we are restricted from making certain acquisitions and taking other specified actions without the consent of TD until the Proposed TD Merger is completed. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Proposed TD Merger.
The TD Merger Agreement contain provisions that could discourage a potential competing acquirer that might be willing to pay more to acquire or merge with us. The TD Merger Agreement contains provisions that restrict our ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by our board of directors, engage in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, any alternative acquisition proposals. These provisions, which include a termination fee of up to
$435.5 million payable by us under certain circumstances, might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us from considering or proposing that acquisition even if, in the case of a potential acquisition of us, it were prepared to pay consideration with a higher per share price to our shareholders than what is contemplated in the Proposed TD Merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.
Shareholder litigation could prevent or delay the completion of the Proposed TD Merger or otherwise negatively impact our business and operations. One or more of our shareholders may file lawsuits against us and/or our directors and officers in connection with the Proposed TD Merger. One of the conditions to the closing is that no order, injunction, or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Proposed TD Merger or any of the other transactions contemplated by the TD Merger Agreement and related bank merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting us from completing the Proposed TD Merger, then such injunction may delay or prevent the effectiveness of the Proposed TD Merger and could result in significant costs to us, including any cost associated with the indemnification of directors and officers of each company. If a lawsuit is filed, we may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the Proposed TD Merger. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the completion of the Proposed TD Merger.
Traditional Competition Risks
We are subject to intense competition for clients, and the nature of that competition is changing quickly. Our primary areas of competition include: consumer and commercial deposits, commercial loans, consumer loans including home mortgages and lines of credit, financial planning and wealth management, fixed income products and services, title insurance services, and other consumer and commercial financial products and services. Our competitors in these areas include national, state, and non-US banks, savings and loan associations, credit unions, consumer finance companies, trust companies, investment counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other financial services companies that serve in our markets. The emergence of non-traditional, disruptive service providers (see Industry Disruption within this Item
1A beginning on page 35) has intensified the competitive environment.
Some competitors are traditional banks, subject to the same regulatory framework as we are, while others are not banks and in many cases experience a significantly different or reduced degree of regulation. Examples of less-regulated activities include check-cashing services, independent ATM services, and “peer-to-peer” lending, where investors provide debt financing or other capital directly to borrowers.
We expect that competition will continue to grow more intense with respect to most of our products and services. Heightened competition tends to put downward pressure on revenues from affected items, upward pressure on marketing and other promotional costs, or both. For additional information regarding competition for


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clients, refer to Competition within Item 1 beginning on page 16 of this report.
We compete for talent. Our most significant competitors for clients also tend to be our most significant competitors for top talent. See Operational Risks below within this Item 1A for additional information concerning this risk.
We compete to raise capital in the equity and debt markets. See Liquidity and Funding Risks beginning on page 46 of this Item 1A for additional information concerning this risk.
Traditional Strategic & Macro Risks
We may be unable to successfully implement our strategy to operate and grow our regional and specialty banking businesses. Although our current strategy is expected to evolve as business conditions change, in 2022 our primary strategies are to (1) invest resources in our banking businesses before and after we complete the integration of the businesses and operations of First Horizon and IBKC, (2) seek to exploit opportunities for cost and revenue synergies, (3) seek to exploit growth opportunities, especially within the markets we serve, and (4) seek to exploit opportunities to cut cost without significant revenue impact. Organic growth, including exploitation of revenue synergies, is expected to be coordinated with a focus on strong and stable returns on capital.
Organically, over the past several years we enhanced our market share in our regional banking markets with targeted hires and marketing, and we invested resources in specialty commercial lending and private client banking. After the completion of the IBKC merger in 2020, we started to invest significantly in new platforms and processes to modernize legacy operations, provide a better client experience, reduce ongoing operating costs, and support future growth of the combined franchise. We expect investments of that sort to continue in 2022. Investments of that sort are expensive in the near term; although we believe they are necessary for our future and are appropriate for our company at this time, the financial returns on these investments are highly uncertain.
In the future more generally, we expect to continue to nurture profitable organic growth. We may pursue acquisitions or strategic transactions if appropriate opportunities, within or outside of our current markets, present themselves.
The TD Merger Agreement restricts us from making certain acquisitions and taking other specified actions while the Proposed TD Merger is pending without the consent of TD, and requires us to operate in the ordinary course of business. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Proposed TD Merger or may otherwise adversely affect our ongoing business and operations. See Risks Related to the Proposed TD Merger beginning on page 31 for a discussion of additional risks related to the Proposed TD Merger.
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Failure to achieve one or more key elements needed for successful organic growth would adversely affect our business and earnings. We believe that the successful execution of organic growth depends upon a number of key elements, including:
our ability to attract and retain clients in our banking market areas;
our ability to achieve and maintain growth in our earnings while pursuing new business opportunities;
our ability to maintain a high level of client service while optimizing our physical banking center count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently;
our ability to manage the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; and
our ability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.
We have in place strategies designed to achieve those elements that are significant to us at present. Our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
Failure to achieve one or more key elements needed for successful business acquisitions would adversely affect our business and earnings. In relation to the IBKC merger and the 30-branch acquisition that we closed in 2020, and to the extent we engage in future bank or non-bank business acquisitions, we face various additional risks, including:
our ability to realize planned strategic and tactical objectives, including operating efficiencies and revenue synergies, within a reasonable time period after closing the transaction;
our ability to identify, analyze, and correctly assess the execution, credit, contingency, and other risks in the acquisition and to price the transaction appropriately;
our ability to properly evaluate loss inherent in the target business’ loan portfolios;


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our ability to integrate the acquired business’ operations, clients, and properties quickly and cost-effectively;
our ability to manage cultural assimilation risks associated with growth through acquisitions, which can be an often-overlooked and often-critical failure point in mergers;
our ability to combine the franchise values of the two companies without significant loss from re-branding and other similar changes; and
our ability to retain core clients and key associates.
These risks may be exacerbated by the Proposed TD Merger. See Risks Related to the Proposed TD Merger beginning on page 31 for a discussion of additional risks related to the Proposed TD Merger.
A type of strategic acquisition—a so-called “merger of equals” where the company we nominally acquire has similar size, operating contribution, or value—presents unique opportunities but also unique risks. Those special risks include:
the potential for elevated and duplicative operating expenses if we are unable to integrate the two companies efficiently in a reasonable amount of time; and
the potential for a significant increase in the time horizon that may be needed before substantial economies of scale can be realized or substantial revenue synergies can be developed effectively.
The IBKC merger continued to present these special risks in 2021 and early in 2022. We expect them to diminish as the integration processes wind down this year.
Industry Disruption
Through technological innovations and changes in client habits, the manner in which clients use financial services continues to change at a rapid pace. We provide a large number of services remotely (online and mobile), and physical banking center utilization has been in long-term decline throughout the industry for many years. Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas.
Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence. This competitive risk is especially pronounced from the largest U.S. banks, and from online-only banks, due in part to the investments they are able to sustain in their digital platforms.
Companies as disparate as PayPal (an online payment clearinghouse) and Starbucks (a large chain of cafes) provide payment and exchange services which compete directly with banks in ways not possible traditionally.
The nature of technology-driven disruption to our industry is changing, in some cases seeking to displace traditional financial service providers rather than merely enhance traditional services or their delivery. A number of recent technologies have worked with the existing financial system and traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones. These sorts of technologies often have expanded the market for banking services overall while siphoning a portion of the revenues from those services away from banks and disrupting prior methods of delivering those services. But some recent innovations may tend to replace traditional banks as financial service providers rather than merely augment those services.
For example, companies which claim to offer applications and services based on artificial intelligence are beginning to compete much more directly with traditional financial services companies in areas involving personal advice, including high-margin services such as financial planning and wealth management. The low-cost, high-speed nature of these “robo-advisor” services can be especially attractive to younger, less-affluent clients and potential clients, as well as persons interested in “self-service” investment management. Other industry changes, such as zero-commission trading offered by certain large firms able to use trading as a loss-leader, may amplify this trend.
Similarly, inventions based on blockchain technology eventually may be the foundation for greatly enhancing transactional security throughout the banking industry, but also eventually may decentralize financial services, reducing the demand for banks as secure deposit-keepers and financial intermediaries.
We believe that, over the course of the technology-driven evolution of our industry which is well underway, the “winners” will be those institutions which can know their clients and make those clients feel they are known, even when many clients increasingly do not visit banking centers or have face-to-face live interaction. Two keys to achieving a psychological connection with such clients are (1) data management and analytics, using artificial intelligence processes, which allow an institution to provide a differentiated, personalized experience for the client at the point of interaction, and (2) seamless integration of real-time client contact with a human being through voice, chat, or other means.
A critical factor in successful data analytics, allowing real-time differentiated interaction with clients, is how traditionally uncaptured, unstructured, or siloed data is


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acquired, managed, and accessed. While many banks are attempting to address this business need in various ways, it remains unclear which approaches will be successful in the long run. In addition, external vendors are developing processes to provide solutions. A basic challenge for all these efforts is how to integrate analysis of extremely disparate forms of data and utilize that analysis in each client contact in a manner which most clients not only accept, but value.
Developing workable proprietary solutions to the data analytics challenges ahead of competitors requires substantial investment in information technology systems and innovation. Even with a substantial IT budget, we cannot outspend, or even come close to matching, the largest U.S. banking institutions. Therefore, like most U.S. banks, our strategy must be focused on leveraging products and solutions which are within our means, including those developed by external vendors. Our goal must be to keep pace with industry developments with a focus on improving the client’s differentiated experience with us by recognizing and responding to client needs.
Technological innovation has tended to reduce barriers to entry based on cost. Put another way, once someone finds a new, better method to accomplish a task in our industry, often others are able to replicate or improve on that method, sometimes quite rapidly. Key risks for us, therefore, are whether we will be able: to catch up to breakthroughs quickly enough to avoid client attrition; to adopt and enhance breakthroughs frequently enough, and without significant technical failures, to attract clients from competitors; and, if we are able to truly innovate, to press our advantage quickly before competitors adopt it.
To thrive as our industry is disrupted, we will need to embrace some of the attitudes of a technology company, and shed some of the traditional attitudes often associated with banking. This has required, and will continue to require, an evolution in our corporate culture which, in turn, creates implementation risk. In this
evolutionary process it is critical that we not lose sight of how our clients experience working with us and our systems, including those clients who still want traditionally-delivered services, those who seek and embrace the latest innovations, and those who just want services to be convenient, personalized, and understandable.
Just as disruptive business changes driven by new technologies and new client preferences can adversely impact us and our entire industry, similar events can adversely impact our commercial clients. In time, a major business disruption can cause dominant businesses to fail, and can shrink or even end entire lines of business. An example of this is the business failure of the Blockbuster video distribution chain and most other video distribution stores, and the rise of Netflix and similar services. Many other examples of this kind of process are ongoing today in many industries, including publishing, retail sales, news, and the creation as well as distribution of audio and video entertainment. To the extent disruptions impact our clients, we may experience elevated loan losses and loss of ongoing business which we may not be able to recapture with new clients.
As an illustration, the COVID-19 pandemic drove substantial changes in the preferences and practices of customers of many industries, including those of many of our clients. In some cases the changes in customer behaviors may be temporary, and in others the changes may be more permanent. For example, we have a significant franchise finance business, largely involving the restaurant industry. Those clients of ours which, before the pandemic, had robust mobile app, drive-through, and home delivery channels weathered the pandemic much better, on average, than others in that industry. Although traditional dine-in demand should increase once the pandemic is no longer a major public concern, it is not certain when or whether that demand will return to pre-pandemic levels.
Operational Risks
Fraud is a major, and increasing, operational risk for us and all banks. Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and actual loss. The methods used to perpetrate and combat fraud continue to evolve as technology changes. In addition to cybersecurity risk (discussed below), new technologies have made it easier for bad actors to obtain and use client personal information, mimic communications and signatures, and otherwise create false instructions and documents that appear genuine.
Our anti-fraud actions are both preventive (anticipating lines of attack, educating associates and clients, etc.) and
responsive (detecting, halting, and remediating actual attacks). Our regulators require us to report fraud promptly, and regulators often advise banks of new schemes so that the entire industry can adapt as quickly as possible. However, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated.
Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business. Operational risk can arise in many ways, including: errors related to failed or inadequate


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physical, operational, information technology, or other processes; faulty or disabled computer or other technology systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by associates or third parties; and exposure to other external events. Inadequacies may present themselves in myriad ways. Actions taken to manage one risk may be ineffective against others. For example, information technology systems may be insufficiently redundant to withstand a fire, incursion, malware, or other major casualty, and they may be insufficiently adaptable to new business conditions or opportunities. Efforts to make systems more robust may make them less adaptable, and vice-versa. Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain client service and compliance at high quality and low cost.
An information technology security (cybersecurity) breach or other incident can cause significant damage, and can be difficult to detect even after it occurs. Among other things, that damage can occur due to outright theft, loss or extortion of our funds or our clients’ funds, fraud or identity theft perpetrated on clients, loss of confidential or proprietary information, business disruption, or adverse publicity associated with a breach or incident and its potential effects. Perpetrators potentially can be associates, clients, and certain vendors, all of whom legitimately have access to some portion of our systems, as well as outsiders with no legitimate access.
Cybersecurity incidents happen frequently; they are an unavoidable part of doing business. Often, but not always, we detect and block the attempt. Often, but not always, the number of clients impacted is modest and our loss is minimal or none. Even with significant loss prevention and mitigation systems, the risk of a financially or reputationally significant incursion cannot be eliminated. Common categories of cybersecurity incidents relevant to us, as a bank, include: account takeover, client spoofing, and payment fraud; ransomware and other malware; client interface attacks (attempts to shut down or slow down our website or mobile app); and cloud (remote server) incursions. Common vulnerabilities include: clients and associates that fall victim to malicious emails or other communications and inappropriately share credentials allowing access to accounts or systems; older software or systems that do not have up-to-date security and are not sufficiently isolated from other systems; third-party software vulnerabilities; and third-party systems vulnerabilities. We believe the bad actors have a range of motivations, including: illegal profit; politically or geopolitically motivated disruption; and vandalism. Bad actors can range from amateurs to criminal organizations to nation-states.
Because of the potential for very serious consequences associated with these risks, our electronic systems and
their upgrades need to address internal and external security concerns to a high degree, and our systems must comply with applicable banking and other regulations pertaining to bank safety and client protection. Although many of our defenses are systemic and highly technical, others are much older and more basic. For example, periodically we train all our associates to recognize red flags associated with fraud, theft, and other electronic crimes, and we educate our clients as well through regular and episodic security-oriented communications. We expect our systems and regulatory requirements to continue to evolve as technology and criminal techniques also continue to evolve.
The operational functions we outsource to third parties may experience similar disruptions that could adversely impact us and over which we may have limited control and, in some cases, limited ability to obtain an alternate vendor quickly. To the extent we rely on third party vendors to perform or assist operational functions, the challenge of managing the associated risks may become more difficult. We manage this risk by assessing the adequacy of cybersecurity prevention and detection systems and programs of critical vendors.
The operational functions of business counterparties, or businesses with which we have no relationship, may experience disruptions that could adversely impact us and over which we may have limited or no control. Although these events cannot be predicted individually, over time and in the aggregate they happen as surely as loan losses. For example, when a major U.S. consumer-oriented firm experiences a data systems incursion resulting in the theft of credit and debit card information, online account information, and other data, it impacts thousands or sometimes millions of people. Frequently, many of those affected are our clients. Although our systems are not breached by third-party incursions, these events can increase account fraud and can cause us to take costly steps to avoid significant theft loss to our Bank and our clients. Our ability to recoup our losses may be limited legally or practically in many situations. Possible points of incursion or disruption not within our control include retailers, utilities, insurers, health care service providers, internet service and electronic mail providers, social media portals, distant-server (“cloud”) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
Failure to build and maintain, or outsource, the necessary operational infrastructure, failure of that infrastructure to perform its functions, or failure of our disaster preparedness plans if primary infrastructure components suffer damage, can lead to risk of loss of service to clients, legal actions, and noncompliance with applicable regulatory standards. Additional information concerning operational risks and our management of them, all of which is incorporated into this Item 1A by this


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reference, appears under the caption Operational Risk Management beginning on page 94 of our 2021 MD&A (Item 7).
The delivery of financial services to clients and others increasingly depends upon technologies, systems, and multi-party infrastructures which are new, creating or enhancing several risks discussed elsewhere. Examples of the risks created or enhanced by the widespread and rapid adoption of relatively untested technologies include: security incursions; operational malfunctions or other disruptions; and legal claims of patent or other intellectual property infringement.
Competition for talent is substantial and increasing. Moreover, revenue growth in some business lines increasingly depends upon top talent. In recent years the cost to us of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. The primary tools we use to attract and retain talent are: salaries; commission, incentive, and retention compensation programs; retirement benefits; change in control severance benefits; health and other welfare benefits; and our corporate culture. To the extent we are
unable to use these tools effectively, we face the risk that, over time, our best talent will leave us and we will be unable to replace those persons effectively.
Incentives might operate poorly or have unintended adverse effects. Incentive programs are difficult to design well, and even if well-designed often they must be updated to address changes in our business. A poorly designed incentive program—where goals are too difficult, too easy, or not well related to desired outcomes—could provide little useful motivation to key associates, could increase turnover, and could impact client retention. Moreover, even where those pitfalls are avoided, incentive programs may create unintended adverse consequences. For example, a program focused entirely on revenue production, without proper controls, may result in costs growing faster than revenues.
We face the risk that our competitors may seek to use the Proposed TD Merger to target our clients. See Risks Related to the Proposed TD Merger beginning on page 31 for a discussion of additional risks related to the Proposed TD Merger.
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Risks from Economic Downturns & Changes
Generally, in an economic downturn, our realized credit losses increase, demand for our products and services declines, and the credit quality of our loan portfolio declines. Delinquencies and realized credit losses generally increase during economic downturns due to an increase in liquidity problems for clients and downward pressure on collateral values. Likewise, demand for loans (at a given level of creditworthiness), deposit and other products, and financial services may decline during an economic downturn, and may be adversely affected by other national, regional, or local economic factors that impact demand for loans and other financial products and services. Such factors include, for example, changes in employment rates, interest rates, real estate prices, or expectations concerning rates or prices. Accordingly, an
economic downturn or other adverse economic change (local, regional, national, or global) can hurt our financial performance in the form of higher loan losses, lower loan production levels, lower deposit levels, compression of our net interest margin, and lower fees from transactions and services. Those effects can continue for many years after the downturn technically ends.
Because all banks are sensitive to the risk of downturns, the stock prices of all banks typically decline, sometimes substantially, if the market believes that a downturn has become more likely or is imminent. This effect can and often does occur indiscriminately, initially without much regard to different risk postures of different banks.
Risks Associated with Monetary Events
The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve. These strategies have had, and will continue to have, a significant impact on our business and on many of our clients. To illustrate: in response to the recession in 2008 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives designed to lower rates and make credit easier to obtain. The Federal Reserve changed course in 2015, raising rates several times through 2018. The last raise in 2018 was accompanied by a substantial and broad stock market
decline. In 2019 the Federal Reserve began to lower rates. In 2020, in response to economic disruption associated with the COVID-19 pandemic, the Federal Reserve quickly reduced short-term rates to extremely low levels and acted to influence the markets to reduce long-term rates as well. During 2021, the Federal Reserve significantly reduced its "easing" actions that held down long-term rates. For 2022, the Federal Reserve has indicated that it expects to end all easing and to begin raising short-term rates, subject in all events to changes in economic data.


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Normalizing (raising) interest rates in 2022, and possibly later, is likely to have several significant impacts on our businesses even if (as expected) rates remain low by historical norms. Key among those: (1) income from loans should increase, but so should our cost of deposits, and the levels or timing of those two increases may be uneven or unsynchronized so that our net interest margin could become less predictable during the transition period; (2) a key negative feature of the past low-rate environment has been a flatter than normal yield curve, and although it is possible rising rates will steepen the curve, it is also possible that the yield curve will flatten (see the next paragraph) or fluctuate unpredictably during the transition period; (3) higher rates, rising rates, and a flatter yield curve each tend to adversely impact our fixed income revenues; and (4) higher rates tend to adversely impact three mortgage-related businesses, consisting of origination, title services, and lending to mortgage companies, and changes in those businesses can be significant and sudden in reaction to changes in mortgage rates.
Recent statements by the Federal Reserve indicate an expectation to reduce its asset holdings in 2022, which will put upward pressure on long-term interest rates. We believe these statements were driven by a concern that, as short and long rates rise, short rates will rise faster, resulting in a flatter yield curve. Reducing the Federal Reserve's asset holdings would be intended to blunt that flattening.
The discussion above is qualified by several key unknowns: (1) although the Federal Reserve can directly change extremely short-term interest rates, its ability to affect long-term rates is indirect and tempered by market forces it cannot control; (2) we do not know what the Federal Reserve actually will do since all statements of possible or expected future actions are subject to future economic events and data; (3) the U.S. economy is in a transitional period, and economic events and data have frequently defied prediction over the past few quarters; and (4) even if overall events and trends follow current expectations, interest rates and the yield curve could experience periods of volatility as short-term economic imbalances work themselves out in the markets.
Additional information concerning these monetary policy transition risks is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; within the Effect of Governmental Policies and Proposals section of Item 1 beginning on page 29; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market
Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99.
Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve. Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks. Among other things, easing strategies are intended to lower interest rates, flatten the yield curve, expand the money supply, and stimulate economic activity, while tightening strategies are intended to increase interest rates, steepen the yield curve, tighten the money supply, and restrain economic activity.
Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly. Such factors include significant economic trends or events as well as significant international monetary policies and events. Such strategies also can affect the U.S. and world-wide financial systems in ways that may be difficult to predict. Risks associated with interest rates and the yield curve are discussed in this Item 1A under the caption Interest Rate and Yield Curve Risks beginning on page 48.
We may be adversely affected by economic and political situations outside the U.S. The U.S. economy, and the businesses of many of our clients, are linked significantly to economic and market conditions outside the U.S., especially in North and Central America, Europe, and Asia, and increasingly in South America. Although our direct exposure to non-US-dollar-denominated assets or non-US sovereign debt is insignificant, in the future major adverse events outside the U.S. could have a substantial indirect adverse impact upon us. Key potential events which could have such an impact include (1) sovereign debt default (default by one or more governments in their borrowings), (2) bank and/or corporate debt default, (3) market and other liquidity disruptions, and, if stresses become especially severe, (4) the collapse of governments, alliances, or currencies, and (5) military conflicts. The methods by which such events could adversely affect us are highly varied but broadly include the following: an increase in our cost of borrowed funds or, in a worst case, the unavailability of borrowed funds through conventional markets; impacts upon our hedging and other counterparties; impacts upon our clients; impacts upon the U.S. economy, especially in the areas of employment rates, real estate values, interest rates, and inflation/deflation rates; and impacts upon us from our regulatory environment, which can change substantially and unpredictably from possible political response to major financial disruptions.
Risks Related to Businesses We May Exit
We may be unable to successfully implement a disposition or wind-down of businesses or units which no
longer fit our strategic plans. We consider possible closures and divestitures as we continue to adapt to a


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changing business and regulatory environment. Actions of this sort typically are elevated in the first few years after a significant merger. Following our 2017 merger with Capital Bank Financial, we closed/consolidated several banking locations and we sold a few of the smaller operating businesses that did not fit well with our strategic outlook. In 2021 we closed/consolidated several dozen banking locations in the wake of the 2020 IBKC merger, and other exiting actions may follow. Key risks associated with exiting a business include:
our ability to price a sale transaction appropriately and otherwise negotiate acceptable terms;
our ability to identify and implement key client, personnel, technology systems, and other transition
actions to avoid or minimize negative effects on retained businesses;
our ability to mitigate the loss of any pretax income that the exited business produced;
our ability to assess and manage any loss of synergies that the exited business had with our retained businesses; and
our ability to manage capital, liquidity, and other challenges that may arise if an exit results in significant legacy cash expenditures or financial loss.
Reputation Risks
Our ability to conduct and grow our businesses, and to obtain and retain clients, is highly dependent upon external perceptions of our business practices and financial stability. Our reputation is, therefore, a key asset for us. Our reputation is affected principally by our business practices and how those practices are perceived and understood by others. Adverse perceptions regarding the practices of our competitors, or our industry as a whole, also may adversely impact our reputation. In addition, negative perceptions relating to parties with whom we have important relationships may adversely impact our reputation. Senior management oversees processes for reputation risk monitoring, assessment, and management.
Damage to our reputation could hinder our ability to access the capital markets or otherwise impact our liquidity, could hamper our ability to attract new clients and retain existing ones, could impact the market value of our stock, could create or aggravate regulatory difficulties, and could undermine our ability to attract and retain talented associates, among other things. Adverse impacts on our reputation, or the reputation of our industry, also may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.
Political and social fragmentation in the U.S., combined with access to social media platforms, can increase reputation risk in ways that might not be easily avoided by traditional means. The predominant culture within the banking industry remains traditional: in order to preserve their business reputations, banks generally prefer to avoid direct, public involvement in political or social controversy. Increasingly, though, certain groups—having highly specific political or social agendas and with the ability to communicate their views effectively using social media platforms—have made it more difficult to maintain a traditional approach. One group, for example, may publicly criticize a bank for having, as a client, a business which “exploits” persons of limited financial means, while another group may criticize a bank for failing to have, as a client, the same business which “serves” such persons in neighborhoods that many businesses avoid. As another example, a group may demand that a bank cease doing business with a specific business client based on the client’s industry or a specific business practice because that industry or practice, though legal, is objectionable to that group. While the potential for such demands has always existed, special interest groups today are more able and willing to publicize their criticisms, and some are willing to use factual exaggerations and inflammatory language in stating their views to the public. Those criticisms, in turn, ultimately may be acted upon by legislators or regulators.
Credit Risks
We face the risk that our clients may not repay their loans and that the realizable value of collateral may be insufficient to avoid a charge-off. We also face risks that other counterparties, in a wide range of situations, may fail to honor their obligations to pay us. In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. In the last pre-COVID credit cycle, net charge-offs
were $132 million in 2007, and increased to $573 million and $832 million in 2008 and 2009, respectively. Beginning in 2010, net charge-offs began to decline, reaching $13 million by 2017 and remaining historically very low through 2019. In 2020, net charge-offs unexpectedly rose to $120 million, driven strongly by the COVID-induced recession starting in March. Net charge-offs in 2021 fell sharply to $2 million, a very low level historically. We


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believe this favorable outcome was substantially affected by our client selection and underwriting processes, along with our willingness to work with borrowers throughout the pandemic. We do not think it likely that net charge-offs in the future will remain at 2021's low level.
Our ability to manage credit risks depends primarily upon our ability to assess the creditworthiness of loan clients and other counterparties and the value of any collateral, including real estate, among other things. We further manage credit risk by diversifying our loan portfolio, by managing its granularity, by following per-relationship lending limits, and by recording and managing an allowance for loan and lease losses based on the factors mentioned above and in accordance with applicable accounting rules. We further manage other counterparty credit risk in a variety of ways, some of which are discussed in other parts of this Item 1A and all of which have as a primary goal the avoidance of having too much risk concentrated with any single counterparty.
We record loan charge-offs in accordance with accounting and regulatory guidelines and rules. As indicated in this Item 1A under the caption Accounting & Tax Risks beginning on page 51, these guidelines and rules could change and cause provision expense or charge-offs to be more volatile, or to be recognized on an accelerated basis, for reasons not always related to the underlying performance of our portfolio. In fact, starting in 2020, such an accounting change was made and, when the COVID recession occurred starting in March, provision for credit losses significantly increased. Moreover, the SEC or PCAOB could take accounting positions applicable to our holding company that may be inconsistent with those taken by the Federal Reserve or other banking regulators.
A significant challenge for us is to keep the credit and other models and approaches we use to originate and manage loans updated to take into account changes in the competitive environment, in real estate prices and other collateral values, in the economy, and in the regulatory environment, among other things, based on our experience originating loans and servicing loan portfolios. Changes in modeling could have significant impacts upon our reported financial results and condition. In addition, we use those models and approaches to manage our loan portfolios and lending businesses. To the extent our models and approaches are not consistent with underlying real-world conditions, our management decisions could be misguided or otherwise affected with substantial adverse consequences to us. A recent and still-current example of challenges we face in modeling stems from the COVID-19 pandemic and its related impacts on clients, the economy, and governmental interventions and accommodations.
The recent low-interest rate environment has elevated the traditional challenge for lenders and investors to balance taking on higher risk against the desire for higher income or yield. This challenge applies not only to credit
risk in lending activities but also to default and rate risks regarding investments.
When interest rates eventually rise, default risk likely also will rise. As borrowers’ obligations to pay interest increase, financial weaknesses generally become more evident. Initially this results in lower consumer credit scores and lower commercial loan grading, and later results in higher default rates.
Realized credit losses tend to increase and decrease in a cyclical manner, although the duration and timing of any given credit cycle is impossible to predict accurately. Through 2019 we and other U.S. banks experienced an extended period of very low credit losses.
The credit cycle was disrupted by COVID-19. Our expectation for loan losses in 2020 rose sharply with the COVID-19 pandemic and its recession, though in many cases actual losses, reflected in net charge offs, did not later materialize. Our expectations for credit loss abated dramatically in 2021, and significant amounts of the 2020 loss reserves were released, resulting in provision credits (negative expenses). We do not know what the new “normal” level of provision for credit loss will be once the impacts of the pandemic have fully ended, or what long-term impact the pandemic will have on the credit cycle. The low provision and net charge-off levels experienced before 2020 were historically unusual and might not be repeated. It is extremely difficult for banks, and for investors, to know when an uptick in credit loss is merely idiosyncratic or instead portends a major credit cycle change.
Based on the foregoing discussions, we expect loan loss provision expense and net charge-offs to be higher than 2021 during the next several years. We hope to offset that headwind with loan growth and, if interest rates rise and the yield curve steepens, higher margins. Loan growth in 2022 will be blunted by run-off of pandemic-era short-term lending under special government programs, and may be blunted if rates rise too much or too quickly.
The composition of our loans inherently increases our sensitivity to certain credit risks. At December 31, 2021, approximately 57% of total loans and leases consisted of the commercial, financial, and industrial (C&I) portfolio, while approximately 20% consisted of the consumer real estate portfolio.
The largest component of the C&I portfolio at year end was loans to mortgage companies, a component which represented about 15% of the C&I portfolio at that time. The second largest component was loans to finance and insurance companies. As a result, approximately 26% of the C&I portfolio was sensitive to impacts on the financial services industry. As discussed elsewhere in this Item 1A with respect to our company, the financial services industry is more sensitive to interest rate and yield curve changes, monetary policy, regulatory policy, changes in


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real estate and other asset values, and changes in general economic conditions, than many other industries. Negative impacts on the industry could dampen new lending in these lines of business and could create credit impacts for the loans in our portfolio.
The consumer real estate portfolio contains a number of concentrations which affect credit risk assessment of the portfolio.
Product concentration. The consumer real estate portfolio consists primarily of consumer installment loans, and much of the remainder consists of home equity lines of credit.
Collateral concentration. This entire category is secured by residential real estate. Approximately 14% of the consumer real estate portfolio consists of loans secured on a second-lien basis.
Geographic concentration. At year end, about 65% of the consumer real estate portfolio related to clients in three states: Florida, Tennessee, and Louisiana.
The consumer real estate category is highly sensitive to economic impacts on consumer clients and on residential real estate values. Job loss or downward job migration, as well as significant life events such as divorce, death, or disability, can significantly impact credit evaluations of the
portfolio. Also, regulatory changes, discussed above and elsewhere in this Item 1A, are more likely to affect the consumer category and our accounting estimates of credit loss than other loan types.
Volatility in the oil and gas industry can impact us. At year-end, approximately 2% of our total loans were directly related to the oil and gas industry. In addition to general credit and other risks mentioned elsewhere in this Item 1A, these businesses and their related assets are sensitive to a number of factors specific to that industry. Key among those is global demand for energy and other products from oil and gas in relation to supply. The shifting balance between demand and supply is expressed most simply in prices. Significant oil-price volatility, such as that experienced in 2020-2021, can and often does impact our overall business in this industry by increasing provisioning and charge-offs, and by reducing demand for loans. Another set of risks specific to that industry relate to environmental concerns, including the risks of increased regulation or other governmental intervention, and the risks of adverse changes in consumption habits or public perceptions generally.
Additional information concerning credit risks and our management of them is set forth under the caption Asset Quality beginning on page 73 of our 2021 MD&A (Item 7).
Service Risks
We provide a wide range of services to clients, and the provision of these services may create claims against us that we provided them in a manner that harmed the client or a third party, or was not compliant with applicable laws or rules. Our services include lending, loan servicing, fiduciary, custodial, depositary, funds management, insurance, and advisory services, among others. We manage these risks primarily through training
programs, compliance programs, and supervision processes. Additional information concerning these risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears under the captions Operational Risk Management and Compliance Risk Management, beginning on page 94 of our 2021 MD&A (Item 7).
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic has led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, has adversely affected our ability to conduct normal business, has adversely affected our clients, continues to adversely impact U.S. and global manufacturing and delivery processes, and is likely to continue to harm our businesses and results of operations in ways that are difficult to predict.
Starting in late February 2020, financial market volatility increased dramatically based on concerns that COVID-19, and the steps being undertaken in many countries to mitigate its spread, would significantly disrupt economic activity. In March 2020, financial market volatility increased further, with several one-day stock market swings that resulted in significant market declines. Additionally: market pricing deteriorated in virtually all
sectors and asset classes except U.S. Treasury securities; many states and cities in the U.S. declared health emergencies, lockdowns, travel restrictions, and quarantines, prohibiting gatherings of more than a small number of people and ordering or urging most businesses and workplaces to close or operate on a very restricted basis; the Federal Reserve lowered short-term interest rates and started a “quantitative easing” program intended to lower longer-term interest rates and foster access to credit; the effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates; and the U.S. Congress enacted several relief laws. Government actions in the U.S. have included loan programs administered by banks and other private-sector lenders, liquidity programs administered by the U.S. Treasury, and favorable accounting and regulatory treatment (for lenders) of certain loan payment deferrals.


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In 2020, the economic effects of these and related actions and events in the U.S. included: large numbers of partial or full business closures; large numbers of people were furloughed or laid off; large increases in unemployment; large numbers of workers worked from home; and large numbers of consumers were unwilling to undertake significant discretionary spending. In addition, worldwide demand for oil fell, resulting in significant drops in oil prices and in the values of oil-related assets.
Starting in late 2020, and accelerating in 2021, vaccines were distributed throughout the U.S. and the physical and commercial shutdowns started to abate. Late in 2021, monoclonal antibody treatments and new anti-viral medications offered hope that infected people could avoid the worst outcomes of the virus more effectively than with earlier treatments. Additional strains of COVID-19 have emerged worldwide, a few of which have caused some earlier restrictions to reappear but without the very large economic shocks experienced in 2020. It appears likely that further new strains will continue to appear, as they do with influenza. It also appears likely that a "return to normal" in 2022 or 2023 will be uneven and delayed at best, and that "normal" behavior patterns in the U.S. may become somewhat different than they were pre-COVID.
Within the U.S., governmental reactions to the pandemic in 2021 have been, and in 2022 very likely will continue to be, inconsistent from state to state and from city to city. Worldwide, these inconsistencies have been more pronounced, including enforced quarantine of large population segments if any outbreak is detected in some countries, closed borders in some countries, and virtually no restrictions at all in some countries. This situation, coupled with unpredictable work slowdowns associated with illness outbreaks, likely has contributed significantly to global supply chain and related difficulties that were commonplace in 2021.
We are not able to predict the impact of these still-changing circumstances on our businesses. The full extent of impacts resulting from the COVID-19 pandemic and other events beyond our control will depend on uncertain future developments, including new information which may emerge concerning the severity of new COVID strains, the effectiveness of vaccines and treatments on existing and new strains, and further actions governments may take to slow the spread of the virus, treat the ill, distribute
the vaccines and treatments, and assist affected businesses.
In addition, the pandemic has resulted in modest operational disruptions for us. Clients’ physical access to banking centers has been restricted off and on in many markets, and many non-client-facing associates continued to work largely on a remote basis into early 2022. In addition, associates have become ill unpredictably, which occasionally slowed or modestly disrupted certain functions or processes. More significant disruptions in the future could adversely impact our businesses, financial condition, and results of operations.
Changes in interest rates due to Federal Reserve actions and market forces, mentioned above, negatively impacted our net interest margin (a measure of the average profit margin applicable to lending). The Federal Reserve has indicated its expectations to end easing, and begin raising short-term interest rates, in 2022, but the timing and degree of normalization cannot be predicted. Additional information is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; Risks Associated with Monetary Events beginning on page 38; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99.
Our clients and vendors have been adversely impacted by governmental and societal responses to COVID-19. Those impacts on clients reduced noninterest income, created downward loan migration (a reduction in loan-grading), and substantially increased provision for credit losses in 2020. Another sudden adverse change in circumstances could result in another round of unexpected provision expense along with a reduction of noninterest income.
In 2022, certain commercial loans will run off, and a portion of certain deposit accounts may diminish. In 2020 and 2021, in response to the pandemic, the U.S. guaranteed a category of commercial loans under the paycheck protection program ("PPP"), and further created rounds of direct-to-citizen cash payment programs. At December 31, 2021, we had $1 billion of PPP loans outstanding, nearly all of which we expect to be paid in 2022.
Regulatory, Legislative, & Legal Risks
The regulatory environment continues to be challenging. We operate in a heavily regulated industry. Our regulatory burdens, including both operating restrictions and ongoing compliance costs, are substantial.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, investment
management, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets and, in particular, on the New York Stock Exchange. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or


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limit our ability to pursue certain business opportunities. See Supervision and Regulation within Item 1 of this report, beginning on page 21, for additional information concerning financial industry regulations. Federal and state regulations significantly limit the types of activities in which we, as a financial institution, may engage. In addition, we are subject to a wide array of other regulations that govern other aspects of how we conduct our business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities increasingly consider changing these regulations or adopting new ones. Such actions could further limit the amount of interest or fees we can charge, could further restrict our ability to collect loans or realize on collateral, could affect the terms or profitability of the products and services we offer, or could materially affect us in other ways.
The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently. Moreover, the importance of specific risks will grow or diminish as circumstances change.
We and our Bank both are required to maintain certain regulatory capital levels and ratios. U.S. capital standards are discussed in Item 1 of this report, in tabular and narrative form, under the caption Capital Adequacy within the Supervision & Regulation section of Item 1 which starts on page 21. Pressures to maintain appropriate capital levels and address business needs in a changing economy may lead to actions that could be dilutive or otherwise adverse to our shareholders. Such actions could include: reduction or elimination of dividends; the issuance of common or preferred stock, or securities convertible into stock; or the issuance of any class of stock having rights that are adverse to those of the holders of our existing classes of common or preferred stock.
Additional information concerning these risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears: under the captions Capital Adequacy and Prompt Corrective Action (PCA) within the Supervision & Regulation section of Item 1 which starts on page 21; under the captions Capital, Capital Risk Management and Adequacy, and Market Uncertainties and Prospective Trends beginning on pages 87, 94, and 99, respectively, of our 2021 MD&A (Item); and under the caption Regulatory Capital in Note 13—Regulatory Capital and Restrictions, beginning on page 159 of our 2021 Financial Statements (Item 8).
Regulation of banks is tiered based on asset size; we are close to reaching $100 billion, which is the next tier above us. Regulatory restrictions and costs tend to increase based on asset tier. The two most significant impacts on us of crossing the $100 billion threshold are: becoming subject to Category IV enhanced prudential
standards; and becoming at-risk for being subject to a liquidity coverage ratio requirement. Additional information appears in the Supervision & Regulation section of Item 1 which starts on page 21. To reach the next tier will require only modest organic growth for another two or three years, and even a modest bank acquisition is likely to put us over $100 billion.
Legal disputes are an unavoidable part of business, and the outcome of pending or threatened litigation cannot be predicted with any certainty. We face the risk of litigation from clients, associates, vendors, contractual parties, and other persons, either singly or in class actions, and from federal or state regulators. Matters of that sort are pending currently; it is unlikely we will ever experience a time when no litigation matter is outstanding. We manage litigation risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with any certainty.
Typically, we are unable to estimate our loss exposure from legal claims until relatively late in the litigation process, which can make our financial recognition of loss from litigation unpredictable and highly uneven from one period to the next. For most of our pending legal matters we have established either no accrual (reserve) or no significant reserve. Financial accounting guidance requires that litigation loss be both estimable and probable before a reserve may be established (recorded as a liability on our balance sheet). Under that guidance, reserves typically are not established for most litigation matters until after preliminary motions to dismiss or to narrow the case are resolved, after discovery is substantially in process, and (in many cases) after preliminary overtures regarding settlement have occurred. Potentially significant cases often are pending for years before any loss is recognized and a reserve is established. Moreover, many cases experience relatively little progress toward resolution for a long period followed by a brief period of rapid development. Lastly, although most cases are resolved with little or no loss to us, for the others our loss typically is recognized either all at once (near the time of resolution) or very unevenly over the life of the case.
Additional information concerning litigation risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears: under the caption Pre-2009 Mortgage Business Risks beginning on page 51; under the captions Repurchase Obligations, Market Uncertainties and Prospective Trends, and Contingent Liabilities beginning on pages 98, 99, and 103, respectively, of our 2021 MD&A (Item 7); and under the caption Contingencies in Note 17—Contingencies and Other Disclosures, beginning on page 168 of our 2021 Financial Statements (Item 8).


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Political dysfunction and volatility within the federal government, both at the regulatory and Congressional level, creates significant potential for major and abrupt shifts in federal policy regarding bank regulation, taxes, and the economy, any of which could have significant impacts on our business and financial performance. Moreover, political conflict within and among branches of government, and within and among government agencies, can rise to a level where day-to-day functions could be interrupted or impaired.
Data privacy is becoming a major political concern. The laws governing it are new, and are likely to evolve and expand. Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses. Two prominent responses are the European Union General Data Protection Regulation and the California Consumer Privacy Act. Neither is a banking industry regulation, but both apply to banks in relation to certain clients. Further general regulation to protect data privacy appears likely. Banks in the U.S. already operate under privacy-protection laws and rules, but banking industry regulations in this area might be enlarged in response to this concern.
Public expectations concerning corporate controls on emissions of carbon dioxide, methane, and other
greenhouse gases could increase our operating costs in the future without a corresponding increase in revenue, could curtail some aspects of our business, or both. At present, environmental regulations do not require us to monitor the direct or indirect greenhouse gas emissions associated with building, operating, or maintaining our physical facilities, nor are we taxed or fined in relation to those emissions, because such gases generally are not considered to be pollutants under federal law. Changing expectations could pressure us to physically measure, monitor, and curtail direct emissions and to estimate indirect emissions or impacts, and eventually could result in legal requirements to take those actions or to pay for measured or estimated emissions. Whether or not legally required, any such actions that we take would increase our operating costs. In addition, such expectations could pressure us to discontinue business relationships with certain clients, or groups of clients, that have suboptimal reputations for emissions.
Although currently no proposal has been published, future regulations could discourage us from lending to clients in certain industries judged to be environmentally high-risk, even if those elevated risk factors have a long time horizon or are speculative for other reasons. Changes of that sort could curtail our ability to pursue profitable business opportunities.
Risks of Expense Control
Our ability to successfully manage expenses is important to our long-term success, but in part is subject to risks beyond our control. Many factors can influence the amount of our expenses, as well as how quickly they grow. As our businesses change—whether by acquisition, expansion, or contraction—additional expenses can arise from asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things.
We manage controllable expenses and risk through a variety of means, including selectively outsourcing or multi-sourcing various functions and procurement coordination and processes. In recent years we have actively sought to make strategic businesses more efficient primarily by investing in technology, re-thinking and right-sizing our physical facilities, and re-thinking and right-sizing our workforce and incentive programs. These efforts usually entail additional near-term expenses in the form of technology purchases and implementation, facility closure or renovation costs, and severance costs, while expected benefits typically are realized with some uncertainty in the future.
We have also focused on the economic profit generated by our business activities and prospects rather than emphasizing revenues or ordinary profit. Economic profit analysis attempts to relate ordinary profit to the capital employed to create that profit with the goal of achieving higher (more efficient) returns on capital employed overall. Activities with higher capital usage bear a greater burden in economic profit analysis. The process is intended to allow us to more efficiently manage investment and utilization of resources. Economic profit analysis involves significant judgment regarding capital allocation. Mistakes in those judgments could result in a mis-allocation of resources and diminished profitability over the long run.
Despite our efforts, our costs could rise due to adverse structural changes or market shifts. For example: in 2021 and early 2022, compensation costs have risen markedly due to market forces beyond our control; and the overall cost of our health insurance benefit is highly dependent upon regulatory factors and market forces which also are beyond our control.



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Geographic Risks
We are subject to risks of operating in various jurisdictions. To a significant degree our banking business is exposed to economic, regulatory, natural disaster, and other risks that primarily impact the south-eastern and south-central U.S. states where we do most of our regional banking business. If those regions of the U.S. were to experience adversity not shared by other parts of the country, we are likely to experience adversity to a degree not shared by those competitors which have a broader or different regional footprint. Examples of these kinds of risks include: earthquakes in Memphis; hurricanes in Florida, Louisiana, the Carolina coasts, or the Texas coast; a major change in health insurance laws impacting the many healthcare companies in middle Tennessee; and automotive industry plant closures.
We have international assets, mainly in the form of loans and letters of credit. Holding non-U.S. assets creates a
number of risks: the risk that taxes, fees, prohibitions, and other barriers and constraints may be created or increased by the U.S. or other countries that would impact our holdings; the risk that currency exchange rates could move unfavorably so as to diminish the U.S. dollar value of assets, or to enlarge the U.S. dollar value of liabilities; and the risk that legal recourse against foreign counterparties may be limited in unexpected ways. Our ability to manage those and other risks depends upon a number of factors, including: our ability to recognize and anticipate differences in legal, cultural, and other expectations applicable to clients, regulators, vendors, and other business partners and counterparties; and our ability to recognize and manage any exchange rate risks to which we are exposed.
Insurance
Our property and casualty insurance may not cover or may be inadequate to cover the risks that we face, and we are or may be adversely affected by a default by insurers. We use insurance to manage a number of risks, including damage or destruction of property as well as legal and other liability. Not all such risks are insured, in any given insured situation our insurance may be inadequate to cover all loss, and many risks we face are uninsurable. For those risks that are insured, we also face the risks that the insurer may default on its obligations or that the insurer may refuse to honor them. We treat the risk of default as a type of credit risk, which we manage by reviewing the insurers that we use and by striving to use more than one insurer when practical. The risk of refusal, whether due to honest disagreement or bad faith, is inherent in any contractual situation.
A portion of our consumer loan portfolio involves mortgage default insurance. If a default insurer were to experience a significant credit downgrade or were to become insolvent, that could adversely affect the carrying value of loans insured by that company, which could result in an immediate increase in our loan loss provision or write-down of the carrying value of those loans on our balance sheet and, in either case, a corresponding impact on our financial results. If many default insurers were to experience downgrades or insolvency at the same time, the risk of a financial impact would be amplified.
We own certain bank-owned life insurance policies as assets on our balance sheet. Some of those policies are “general account” and others are “separate account.” The general account policies are subject to the risk that the carrier might experience a significant downgrade or become insolvent. The separate account policies are less susceptible to carrier risk, but do carry a higher risk of value fluctuations in securities which underlie those policies. Both risks are managed through periodic reviews of the carriers and the underlying security values. However, particularly for the general account policies, our ability to liquidate a policy in anticipation of an adverse carrier event is significantly limited by applicable insurance contracts and regulations as well as by a substantial tax penalty which could be levied upon early policy termination.
When we self-insure certain exposures, our estimates of future expenditures may be inadequate for the actual expenditures that occur. For example, we self-insure our associate health-insurance benefit program. We estimate future expenditures and establish accruals (reserves) based on the estimates. If actual expenditures were to exceed our estimates in a future period, our future expenses could be adversely and unexpectedly increased.
Liquidity & Funding Risks
Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity, may materially and adversely affect our businesses, results of
operations, financial conditions and cash flows. In general, the costs of our funding directly impact our costs of doing business and, therefore, can positively or


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negatively affect our financial results. Our funding requirements in 2021 were met principally by deposits, by financing from other financial institutions, and by funds obtained from the capital markets.
Deposits traditionally have provided our most affordable funds and by far the largest portion of funding. However, deposit trends can shift with economic conditions. If interest rates fall, deposit levels in our Bank might fall, perhaps fairly quickly if a tipping point is reached, as depositors become more comfortable with risk and seek higher returns in other vehicles. This could pressure us to raise interest we pay on our deposits, which could shrink our net interest margin if loan rates do not rise correspondingly.
In the past three years, interest rates paid on deposits have fallen to remarkably low levels, and stock market values (broadly speaking) have climbed. Contrary to the expectations outlined in the paragraph above, deposit levels also have climbed. While difficult to explain definitively, it is possible that while a sizable portion of available capital holders are comfortable with risk in the stock markets, another sizable portion are highly risk-averse in light of the severe volatility experienced by the stock markets in 2018, 2019, and 2020. Deposit levels in 2020 and 2021 also were buoyed by Federal pandemic assistance, particularly direct cash payments to most citizens.
Deposit levels may be affected, fairly quickly, by changes in monetary policy. The Federal Reserve currently is changing monetary policy from easing to tightening. The Federal Reserve has indicated it intends to end easing, and begin tightening, based on economic events during the year, including inflationary pressures, employment data, and overall economic activity. Easing thus far has involved reducing the growth rate of the Federal Reserve's balance sheet (bond purchases), eventually to zero. If the Federal Reserve decides to shrink its balance sheet in order to quickly remove excess liquidity from the banking system, long-term interest rates may increase suddenly, and deposit levels may decrease significantly as clients move funds into bonds and similar instruments. Additional information concerning monetary policy changes appears under the caption Risks Associated with Monetary Events beginning on page 38 within this Item 1A, and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 99.
The market among banks for deposits may be impacted by capital rules. Those rules generally provide favorable
treatment for core deposits. Institutions with less than $100 billion of assets are not required to maintain a minimum Liquidity Coverage ratio. At or above $100 billion, the requirement increases with size and certain activities. The largest banks, which must maintain the highest minimum ratio, may be incented to compete for core deposits vigorously. Although mid-sized banks, like ours, are only lightly impacted by this rule, if some large banks in our markets take aggressive actions we could lose deposit share or be compelled to adjust our deposit pricing and practices in ways that could increase our costs.
We also depend upon financing from private institutional or other investors by means of the capital markets. In 2020 we issued and sold $150 million of preferred stock, along with a total of $1.3 billion of senior and subordinated notes. In 2021, we issued and sold another $150 million of preferred stock. Presently we believe we could access the capital markets again if we desired to do so. Risk remains, however, that capital markets may become unavailable to us for reasons beyond our control.
A number of more general factors could make funding more difficult, more expensive, or unavailable on affordable terms. These include, but not limited to, our financial results, organizational or political changes, adverse impacts on our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our loan portfolio or other assets, changes affecting our corporate and regulatory structure, interest rate fluctuations, ratings agency actions, general economic conditions, and the legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control. Changes associated with LIBOR also may impact our funding ability; see Interest Rate and Yield Curve Risks beginning on page 48.
Events affecting interest rates, markets, and other factors may adversely affect the demand for our products and services in our fixed income business. As a result, disruptions in those areas may adversely impact our earnings in that business unit.
Credit Ratings
Our credit ratings directly affect the availability and cost of our unsecured funding. Our holding company (the Corporation) and our Bank currently receive ratings from several rating agencies for unsecured borrowings. A rating
below investment grade typically reduces availability and increases the cost of market-based funding. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Fitch Ratings, is considered investment grade for


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many purposes. At December 31, 2021, both rating agencies rated the unsecured senior debt of the Corporation and of the Bank as investment grade. The ratings outlook was stable from Moody’s and from Fitch for both the Corporation and the Bank. To the extent that in the future we depend on institutional borrowing and the capital markets for funding and capital, we could experience reduced liquidity and increased cost of unsecured funding if our debt ratings were lowered further, particularly if lowered below investment grade. In addition, other actions by ratings agencies can create uncertainty about our ratings in the future and thus can adversely affect the cost and availability of funding, including placing us on negative outlook or on watchlist. Please note that a credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time, and should be evaluated independently of any other rating.
Reductions in our credit ratings could result in counterparties reducing or terminating their relationships with us. Some parties with whom we do business may have internal policies restricting the business that can be done with financial institutions, such as the Bank, that have credit ratings lower than a certain threshold.
Reductions in our credit ratings could allow some counterparties to terminate and immediately force us to settle certain derivatives agreements, and could force us to provide additional collateral with respect to certain derivatives agreements. Under our margin agreements, we are required to post collateral in the amount of our derivative liability positions with derivative counterparties. FHN could be asked to post collateral of an undetermined amount based on changes in credit ratings and derivative value.
Interest Rate & Yield Curve Risks
We are subject to interest rate risk because a significant portion of our business involves borrowing and lending money, and investing in financial instruments. A considerable portion of our funding comes from short-term and demand deposits, while a sizeable portion of our lending and investing is in medium-term and long-term instruments. Changes in interest rates directly impact our revenues and expenses, and could expand or compress our net interest margin. We actively manage our balance sheet to control the risks of a reduction in net interest margin brought about by ordinary fluctuations in rates. In addition, our fixed income business tends to perform better when rates decline or markets are volatile, which tends to partially offset net interest margin compression.
A flat or inverted yield curve may reduce our net interest margin and adversely affect our lending and fixed income businesses. The yield curve is a reflection of interest rates, at various maturities, applicable to assets and liabilities. The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is usually upward sloping (higher rates for longer terms). However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years. A flat or inverted yield curve tends to decrease net interest margin, which would adversely impact our lending businesses, and it tends to reduce demand for long-term debt securities, which would adversely impact the revenues of our fixed income business.
The U.S. is transitioning away from “easing,” with the Federal Reserve indicating its expectations that bond purchases will end. In addition, short-term interest rates could be raised, starting in 2022. This significant change
in direction, and in the underlying economics that are prompting the change, create opportunities and risks for us. The cessation of easing should result in upward pressure on long-term interest rates, steepening the yield curve and potentially providing a significant financial benefit to us. Raising short-term rates may re-flatten the yield curve and moderate or even end that benefit, unless long-term rates continue to rise in tandem with short rates. See Risks Associated with Monetary Events beginning on page 38 of this report for additional information. Moreover, the Federal Reserve appears to be taking these actions over concerns about monetary inflation and economic slowdown. An economic slowdown would adversely impact us even if rate moves, in isolation, would provide a benefit. See Risks from Economic Downturns beginning on page 38 for additional information.
Market-indexed deposit products are very sensitive to changes in short-term rates, and our use of them increases our exposure to such changes. If market rates rise, an increase in those deposit rates may be necessary before we are able to effect similar increases in loan rates.
Expectations by the market regarding the direction of future interest rate movements can impact the demand for and value of our fixed income investments, and can impact the revenues of our fixed income business. This risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.
The expected discontinuance of LIBOR as a viable benchmark rate may adversely affect our business and our operating results. In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates the London InterBank Offered Rate


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("LIBOR"), announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR. In 2021, the FCA announced that tenors of U.S. dollar ("USD") LIBOR will no longer be published as follows:
One week and 2-month USD LIBOR will not be published after December 31, 2021; and
All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and 12-month tenors) will not be published after June 30, 2023.
In the U.S., multiple alternative reference rates have become accepted alternatives to LIBOR. These alternatives include:
SOFR and Term SOFR. The Alternative Reference Rates Committee (“ARRC”) is a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York ("New York Fed") to help ensure a successful transition from USD LIBOR to a more robust reference rate. The ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative. SOFR is published by the New York Fed but is not directly comparable to LIBOR and cannot easily or simply be substituted for it in outstanding instruments. Key differences between the two are: SOFR is based on secured lending, LIBOR is not; and SOFR historically has been published only as an overnight rate, while LIBOR is published in many short-term forward looking maturity tenors.
Since SOFR is based on secured lending, it is generally considered a “risk-free rate” whereas LIBOR includes an implicit credit spread. Currently there is market-accepted practice to fully address this first difference of SOFR from LIBOR. In response to the second difference, CME Group began to publish Term SOFR, a forward-looking rate with 1-month, 3-month and 6-month tenors. Term SOFR is based on SOFR futures contracts. The ARRC has recommended conventions for Term SOFR rates and has recommended CME Group as the administrator for Term SOFR.
AMERIBOR. Another alternative, the American Interbank Offered Rate (“AMERIBOR”) Index, is produced by the American Financial Exchange. AMERIBOR is based on actual transaction data involving credit decisions by many financial institutions, on an unsecured basis.
BSBY. The Bloomberg short-term bank yield index ("BSBY") is a proprietary rate index calculated and published by Bloomberg Index Services Limited. BSBY is based on actual transaction data involving unsecured credit.
FHN ceased originating new loans using LIBOR, and began making all three of those alternatives available to most
commercial clients, in late 2021. For consumer adjustable rate mortgages, FHN offers only SOFR as the reference rate, which FHN believes has become the leading alternative in the U.S. for that category of loans. Outstanding loans affected by the 2021 discontinuance of LIBOR were transitioned to a new reference rate. The one-week and two-month USD LIBOR tenors were not commonly used, however; as a result, early in 2022, most of FHN's outstanding pre-2022 loans which use a reference rate continue to use LIBOR.
The impacts of this transition began late in 2021 and will continue for several years. Competitive pressures continue to constrain our ability to set terms using an alternative reference rate, and the industry has only modest experience with how these alternative rates behave in a variety of contexts and, therefore, what the risks are to the bank, and to the client, if conditions change after a loan is made. As a result, it is unclear how this transition, and the fully post-LIBOR environment starting in mid-2023, will impact our loan spreads and net interest margin overall.
As a lender, an owner of securities, or a contractual counterparty, our primary exposures to LIBOR are in variable-rate loans and in hedging transactions. As mentioned above, we are not able to determine the impact on us that LIBOR discontinuance will have.
A few instruments issued by us, including certain series of preferred stock and certain trust preferred obligations, have floating rate terms based on LIBOR, or have fixed rates that later will convert to floating rate terms based on LIBOR. We have risk that an adverse outcome of the LIBOR transition after the scheduled discontinuation could increase our interest, dividend, and other costs relative to those instruments. We may not be able to refinance those instruments on terms that reduce those costs to the level we would have expected if LIBOR were to continue indefinitely, unchanged.
The transition from LIBOR may impact our ability to use hedge accounting, which could impact us as a lender, a securities owner, a counterparty, or an issuer. Accounting and tax agencies have issued guidance that may ease the transition, or at least clarify the outcomes in various situations.
Additional information concerning the risks associated with LIBOR discontinuance and our management of them, all of which is incorporated into this Item 1A by this reference, appears under the caption LIBOR and Reference Rate Reform within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), which begins on page 99.



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ITEM 1A. RISK FACTORS
Asset Inventories & Market Risks
The trading securities inventories and loans held for sale in our fixed income business are subject to market and credit risks. In the course of that business we hold trading securities inventory and loan positions for purposes of distribution to clients, and we are exposed to certain market risks attributable principally to interest rate risk and credit risk associated with those assets. We manage the risks of holding inventories of securities and loans through certain market risk management policies and procedures, including, for example, hedging activities and Value-at-Risk (“VaR”) limits, trading policies, modeling, and stress analyses. Average fixed income trading securities (long positions) were $1.4 billion for 2021, 2020, and 2019. Average fixed income trading liabilities (short positions) were $540 million, $457 million, and $503 million for 2021, 2020, and 2019, respectively. Average loans held for sale in our fixed income business were $563 million, $554 million, and $485 million for 2021, 2020, and 2019. Additional information concerning these risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears under the caption Market Risk Management beginning on page 91 of our 2021 MD&A (Item 7).
Declines, disruptions, or precipitous changes in markets or market prices can adversely affect our fees and other income sources. We earn fees and other income related to our brokerage business and our management of assets for clients. Declines, disruptions, or precipitous changes in markets or market prices can adversely affect those revenue sources.
Significant changes to the securities market’s performance can have a material impact upon our assets, liabilities, and financial results. We have a number of assets and obligations that are linked, directly or indirectly, to major securities markets. Significant changes in market performance can have a material impact upon our assets, liabilities, and financial results.
An example of that linkage is our obligation to fund our pension plan so that it may satisfy benefit claims in the future. Our pension funding obligations generally depend upon actuarial estimates of benefits claims, the discount rate used to estimate the present values of those claims, and estimates of plan asset values. Our obligations to fund the plan can be affected by changes in any of those three factors. Accordingly, our obligations diminish if the plan’s investments perform better than expectations or if
estimates are changed anticipating better performance, and can grow if those investments perform poorly or if expectations worsen. A rise in interest rates is likely to negatively impact the values of fixed income assets held in the plan, but would also result in an increase in the discount rate used to measure the present value of future benefit payments. Similarly, our obligations can be impacted by changes in mortality tables or other actuarial inputs. We manage the risk of rate changes by investing plan assets in fixed income securities having maturities aligned with the expected timing of payouts. Because there are no new participants, the actuarial-input risk should slowly diminish over time.
Changes in our funding obligation generally translate into positive or negative changes in our pension expense over time, which in turn affects our financial performance. Our obligations and expenses relative to the plan can be affected by many other things, including changes in our participating associate population and changes to the plan itself. Although we have taken actions intended to moderate future volatility in this area, risk of some level of volatility is unavoidable.
Our hedging activities may be ineffective, may not adequately hedge our risks, and are subject to credit risk. In the normal course of our businesses we attempt to create partial or full economic hedges of various, though not all, financial risks. For example: our fixed income unit manages interest rate risk on a portion of its trading portfolio with short positions, futures, and options contracts; we hedge the risk of interest rate movements related to the gap between the time we originate mortgage loans and the time we sell them; and we use derivatives, including swaps, swaptions, caps, forward contracts, options, and collars, that are designed to moderate the impact on earnings as interest rates change. Generally, in the last example these hedged items include certain term borrowings and certain held-to-maturity loans.
Hedging creates certain risks for us, including the risk that the other party to the hedge transaction will fail to perform (counterparty risk, which is a type of credit risk), and the risk that the hedge will not fully protect us from loss as intended (hedge failure risk). Unexpected counterparty failure or hedge failure could have a significant adverse effect on our liquidity and earnings.
Mortgage Business Risks
Three of our mortgage-related businesses—mortgage origination, title services, and lending to mortgage companies—are highly sensitive to interest rates and rate cycles. When rates are higher, client activity (and our
related income) tends to be muted. Lower rates tend to foster higher activity. The U.S. has experienced extremely low interest rates for several years. Late in 2021, and continuing in 2022, the Federal Reserve has indicated its


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intention to start normalizing (raising) interest rates. Although the prospect of rate increases might result in higher client activity for a brief time, and although the increases being publicly discussed early in 2022 would leave rates still very low by historical norms, we expect that rising rates in 2022 and possibly later will curtail our income from these businesses. That reduction in business could be significant and fairly sudden. Additional information concerning rates and their impacts upon us is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; in Risks Associated with Monetary Events beginning on page 38; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99.
We have contractual risks from our mortgage business. Our traditional mortgage business primarily consists of helping clients obtain home mortgages which we sell, rather than hold, or which qualify for a government-guarantee program. The mortgage terms conform to the requirements of the mortgage buyers or government agencies, and we make representations to those buyers or agencies concerning conformity of each mortgage at origination. Although the buyers and agencies generally take the risk that a mortgage defaults, we retain the risk that our representations were materially incorrect. In such a case, the buyer or agency generally has the power to force us to take the loan back for its face value, or to make the buyer or agency whole for loss.
Some government mortgage programs could impose penalties on us for misrepresentations at the time of obtaining benefits under the program. Penalties can be severe, up to three times the agency’s loss. As a result, mortgage origination processes need to emphasize being thorough and correct, in compliance with all agency standards. Those processes tend to slow the mortgage lending process for clients, and increase the complexity of the paperwork.
The mortgage servicing business creates regulatory risks. Servicing requires continual interaction with consumer clients. Federal, state, and sometimes local laws regulate when and how we interact with consumer clients. The requirements can be complex and difficult for us to administer, especially if a client is having difficulty with the mortgage loan. Failure to follow the applicable rules can result in significant penalties or other loss for us.
The mortgage servicing business creates financial reporting valuation risks. Our contractual right to service a loan generally is viewed as an asset for financial reporting purposes. Servicing rights are initially recognized at fair value, which affects the gains recognized upon sale of the related loans. Thereafter, servicing rights are amortized and reviewed for impairment. The valuations of servicing rights are dependent upon a number of inputs and assumptions that require management judgment. If our servicing rights become large in relation to our overall size, especially in volatile times, the impact of valuation changes can be significant and difficult to predict.
Pre-2009 Mortgage Business Risks
We have risks from the mortgage-related businesses legacy First Horizon exited in 2008, including mortgage loan repurchase and loss-reimbursement risk, claims of improper foreclosure practices, and claims of non-compliance with contractual and regulatory requirements. In 2008 we exited our national mortgage and related lending businesses. We retain the risk of liability to clients and contractual parties with whom we dealt in the course of operating those businesses.
Additional information concerning risks related to our former mortgage businesses and our management of
them, all of which is incorporated into this Item 1A by this reference, is set forth: under the captions Repurchase Obligations beginning on page 98, and Contingent Liabilities beginning on page 103, of our 2021 MD&A (Item 7); and under the captions Exposures from pre-2009 Mortgage Business and Mortgage Loan Repurchase and Foreclosure Liability, both within Note 17—Contingencies and Other Disclosures of our 2021 Financial Statements (Item 8), which Note begins on page 168.
Accounting & Tax Risks
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. The estimate that is consistently one of our most critical is the level of the allowance for credit losses. However, other estimates can be highly significant at discrete times or
during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time. As actual events unfold, estimates are adjusted accordingly. Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses


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that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the estimates that we make today. Moreover, in some cases, especially concerning litigation and other contingency matters where critical information is inadequate, often we are unable to make estimates until fairly late in a lengthy process.
A significant merger or acquisition requires us to make many estimates, including the fair values of acquired assets and liabilities. With larger transactions, fair value and other estimations can take up to four quarters to finalize. These estimates, and their revisions, can have a substantial effect on the presentation of our financial condition and operating results after the transaction closes. In addition, the excess of the value “paid” by us in the merger or acquisition over the fair value of the assets acquired, net of liabilities assumed, is recorded as goodwill. Goodwill is subject to periodic impairment assessment, a process that can result in impairment expense which may be significant and sudden.
Changes in accounting rules can significantly affect how we record and report assets, liabilities, revenues, expenses, and earnings. Although such changes generally affect all companies in a given industry, in practice changes sometimes have a disparate impact due to differences in the circumstances or business operations of companies within the same industry.
One such accounting change, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” substantially revised the measurement and recognition of credit losses for certain assets, including most loans, in a manner that substantially changed when and how we recognize loan loss. ASU 2016-13 was effective for us on January 1, 2020. Under ASU 2016-13, when we make or acquire a new loan, we are required to recognize immediately the “current expected credit loss,” or “CECL,” of that loan. We will also re-evaluate CECL each quarter that the loan is outstanding. CECL is the difference between our cost and the net amount we expect to collect over the life of the loan using certain estimation methods that incorporate macroeconomic forecasts and our experience with other, similar loans. In contrast, the pre-2020 accounting standard delayed recognition until loss was “probable” (very likely). We adopted ASU 2016-13 and CECL accounting starting in 2020, with the impact on regulatory capital having a phase-in period. Starting in
2020, recognition of estimated credit loss was significantly accelerated compared to pre-CECL practice, which was aggravated by the actual and projected effects of the pandemic. Additional information concerning ASU 2016-13 appears in Note 1—Significant Accounting Policies within our 2021 Financial Statements (Item 8) beginning on page 122, and in Item 1 under the caption CECL Accounting and COVID-19 within the section entitled Significant Business Developments Over Past Five Years, which begins on page 12, all of which information is incorporated into this Item 1A by reference.
In comparison with former (pre-2020) standards, CECL accounting likely will continue to: result in a significant increase in our provision for credit losses (expense) and allowance (reserve) during any period of loan growth, including organic growth and growth created by acquisition or merger; through the increased provision, adversely impact our earnings and, correspondingly, our regulatory capital levels; and enhance volatility in loan loss provision and allowance levels from quarter to quarter and year to year, especially during times when the economy is in transition or experiencing significant volatility. Moreover, once fully phased in, CECL creates an incentive for banks to reduce new lending in the “down” part of the economic cycle in order to reduce loss recognition and conserve regulatory capital. That perverse incentive could, nationwide, prolong a down cycle in the economy and delay a recovery.
Changes in regulatory rules can create significant accounting impacts for us. Because we operate in a regulated industry, we prepare regulatory financial reports based on regulatory accounting standards. Changes in those standards can have significant impacts upon us in terms of regulatory compliance. In addition, such changes can impact our ordinary financial reporting, and uncertainties related to regulatory changes can create uncertainties in our financial reporting.
Our controls and procedures may fail or be circumvented. Internal controls, disclosure controls and procedures, and corporate governance policies and procedures (“controls and procedures”) must be effective in order to provide assurance that financial reports are materially accurate. A failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations.
Share Owning & Governance Risks
The principal source of cash flow to pay dividends on our stock, as well as service our debt, is dividends and distributions from the Bank, and the Bank may become unable to pay dividends to us without regulatory approval. First Horizon Corporation primarily depends
upon common dividends from the Bank for cash to fund dividends we pay to our common and preferred shareholders, and to service our outstanding debt. Regulatory constraints might constrain or prevent the Bank from declaring and paying dividends to us in 2022


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without regulatory approval. Applying the dividend restrictions imposed under applicable federal and state rules, the Bank’s total amount available for dividends, without obtaining regulatory approval, was $1.1 billion at January 1, 2022.
Also, we are required to provide financial support to the Bank. Accordingly, at any given time a portion of our funds may need to be used for that purpose and therefore would be unavailable for dividends.
Furthermore, the Federal Reserve has issued policy statements generally requiring insured banks and bank holding companies only to pay dividends out of current operating earnings. The Federal Reserve has released a supervisory letter advising bank holding companies, among other things, that as a general matter a bank holding company should inform the Federal Reserve and should eliminate, defer or significantly reduce its dividends if (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the bank holding company’s prospective rate of earnings is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Our shareholders may suffer dilution if we raise capital through public or private equity financings to fund our operations, to increase our capital, or to expand. If we raise funds by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our current common shareholders will be reduced, the new equity securities may have rights and preferences superior to those of our common or outstanding preferred stock, and additional issuances could be at a sales price which is dilutive to current shareholders. We may also issue equity securities directly as consideration for acquisitions we may make that would be dilutive to shareholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically.
The IBKC merger, for example, resulted in a significant increase in our outstanding shares. In 2020, we issued to former IBKC shareholders common shares representing about 44% of our post-closing outstanding shares.
Our issuance of preferred stock raises regulatory capital without issuing common shares, but creates or expands our general obligation to pay all preferred dividends ahead of any common dividends. Currently we have six series of preferred stock outstanding, one issued by the Bank and five by First Horizon Corporation. Subject to capital needs and market conditions, additional series may be issued in the future.
Provisions of Tennessee law, and certain provisions of our charter and bylaws, could make it more difficult for a third party to acquire control of us or could have the effect of discouraging a third party from attempting to acquire control of us. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be at a price attractive to many of our shareholders. In addition, federal banking laws prohibit non-financial-industry companies from owning a bank, and require regulatory approval of any change in control of a bank.
Certain legal rights of holders of our common stock and of depositary shares related to our preferred stock to pursue claims against us or the depositary, as applicable, are limited by our bylaws and by the terms of the deposit agreements. Our bylaws provide that, unless we consent in writing to an alternative forum, a state or federal court located within Shelby County in the State of Tennessee will be the sole and exclusive forum for (i) any derivative action or proceeding brought in our right or name, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other associate of ours to us or our shareholders, (iii) any action asserting a claim against us or any director, officer or other associate of ours arising pursuant to any provision of the Tennessee Business Corporation Act, of our charter or bylaws or (iv) any action asserting a claim against us or any director, officer or other associate of ours that is governed by the internal affairs doctrine. In addition, each deposit agreement between us and the depositary, which govern the rights of the depositary shares related to our Series B, C, and D preferred stock, provide that any action or proceeding arising out of or relating in any way to the deposit agreement may only be brought in a state court located in the State of New York or in the United States District Court for the Southern District of New York.
The foregoing exclusive forum clauses may have the effect of discouraging lawsuits against us or our directors, officers or other associates, or against the depositary, as applicable. Exclusive forum clauses may also lead to increased costs to bring a claim, or may limit the ability of holders of our common stock or depositary shares to bring a claim in a judicial forum they find favorable.
In addition, the exclusive forum clauses in our bylaws and deposit agreement could apply to actions or proceedings that may arise under the federal securities laws, depending on the nature of the claim alleged. To the extent these exclusive forum clauses restrict the courts in which holders of our common stock or depositary shares may bring claims arising under the federal securities laws, there is uncertainty as to whether a court would enforce such provisions. These exclusive forum provisions do not mean that holders of our common stock or depositary shares have waived our obligations to comply with the federal securities laws and the rules and regulations thereunder.


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ITEM 1B. UNRESOLVED STAFF COMMENTS AND ITEM 2. PROPERTIES
Item 1B.    Unresolved Staff Comments
Not applicable.

Item 2.    Properties
We own or lease no single physical property that we consider to be materially important to our financial condition or results from operations.
Our banking centers, our fixed income and capital markets offices, our title services offices, our wealth management offices, and our loan origination, processing, and other physical offices, in the aggregate, remain important to our ability to deliver financial services to a large portion of our clients. For many years, banking center usage by clients has slowly declined, and for many years we have consolidated banking center locations in response to changing utilization patterns. We expect that long-term trend to continue. Information concerning our business locations, including banking center and other client-facing facilities, at year-end 2021 is provided under the caption Principal Businesses, Brands, & Locations within the Our Businesses section of Item 1 of this report, which begins on page 9; that information is incorporated into this Item 2 by this reference.
In addition to the banking centers and other offices mentioned in Item 1, we own or lease other offices and office buildings, such as our headquarters building at 165 Madison Avenue in downtown Memphis, Tennessee. Although some of these other offices contain banking centers or other client-facing offices, primarily they are used for operational and administrative functions. Our operational and administrative offices are located in several cities where we have banking centers.
At December 31, 2021, we believe our physical properties are suitable and adequate for the businesses we conduct.


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ITEM 3. LEGAL PROCEEDINGS AND ITEM 4. MINE SAFETY DISCLOSURES

Item 3.    Legal Proceedings
The Contingencies section from Note 17-Contingencies and Other Disclosures, beginning on page 168 of this report within our 2021 Financial Statements (Item 8), is incorporated herein by reference.




Item 4.    Mine Safety Disclosures
Not applicable.



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2021 FORM 10-K ANNUAL REPORT

SUPPLEMENTAL PART I INFORMATION
Supplemental Part I Information
Executive Officers of the Registrant
The following is a list of our executive officers, as defined by Securities and Exchange Commission rules, along with certain supplemental information, all presented as of February 20, 2022. The executive officers generally are elected at the April meeting of our Board of Directors
(following the annual meeting of shareholders) for a term of one year and until their successors are elected and qualified.

Name & AgeCurrent (Year First Elected to Office) and Recent Offices & Positions
Terry L. Akins
Age: 58
Senior Executive Vice President—Chief Risk Officer of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Ms. Akins assumed the role of Senior Executive Vice President—Chief Risk Officer of First Horizon and the Bank. Prior to the merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in 2002, the most recent of which was Senior Executive Vice President and Chief Risk Officer (2017-2020).
Elizabeth A. Ardoin
Age: 52
Senior Executive Vice President—Chief Communications Officer of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Ms. Ardoin assumed the role of Senior Executive Vice President—Chief Communications Officer of First Horizon and the Bank. Prior to the merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in 2002, the most recent of which was Senior Executive Vice President and Director of Communications (2002-2020), which included marketing, public relations, human resources, and corporate real estate, and she served as chief of staff to the CEO.
Daryl G. Byrd
Age: 67
Executive Chairman of the Board of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Byrd assumed the role of Executive Chairman of the Board of First Horizon and the Bank. Prior to the merger, he served as President (1999-2020) and Chief Executive Officer (2000-2020) of IBERIABANK Corporation and IBERIABANK. Mr. Byrd's term of office will end July 1, 2022.
Hope Dmuchowski
Age: 43
Principal Financial Officer
Senior Executive Vice President—Chief Financial Officer of First Horizon & the Bank (2021)
Ms. Dmuchowski was elected to her current position in November 2021. Previously, she was Executive Vice President, Head of Financial Planning and Analysis and Management Reporting for Truist Financial Corp. (Sept.-Nov. 2021); Executive Vice President, Chief Financial Officer Corporate Banking, Commercial Banking and Corporate Groups for Truist (2019-2021); Executive Vice President, Chief Financial Officer Group Director for BB&T Corp. (2017-2019); and Sr. Vice President, Chief Financial and Operations Officer—Enterprise Operations Services for BB&T (2013-2017). Her career with BB&T, a predecessor of Truist, started in 2007.
Jeff L. Fleming
Age: 60
Principal Accounting Officer
Executive Vice President—Chief Accounting Officer and Corporate Controller of First Horizon & the Bank (2012)
Mr. Fleming assumed the role of Executive Vice President—Chief Accounting Officer and Corporate Controller in 2012. Previously, starting in 1984, he held several positions with us, most recently (before his current role) Executive Vice President—Corporate Controller (2010-2011).
D. Bryan Jordan
Age: 60
Principal Executive Officer
President and Chief Executive Officer (2008) of First Horizon & the Bank
Mr. Jordan became President and Chief Executive Officer in 2008. He was Chairman of the Board from 2012 until we closed the merger of equals between First Horizon and IBKC in 2020. From 2007 until 2008 Mr. Jordan was Executive Vice President and Chief Financial Officer of First Horizon and the Bank. From 2000 until 2002 Mr. Jordan was Comptroller, and from 2002 until 2007 Mr. Jordan was Chief Financial Officer, of Regions Financial Corp. During that time he was also an Executive Vice President and a Senior Executive Vice President of Regions.
Tammy S. LoCascio
Age: 53
Senior Executive Vice President—Chief Operating Officer of First Horizon & the Bank (2021)
Following the closing of the merger of equals between First Horizon and IBKC in 2020, Ms. LoCascio assumed the role of Senior Executive Vice President—Chief Human Resources Officer of First Horizon and the Bank. Prior to the merger, starting in 2011, she served in several roles with the Bank, most recently Executive Vice President—Consumer Banking (2017-2020). In that role she led the retail, private client/wealth management, mortgage, and small business units.


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2021 FORM 10-K ANNUAL REPORT

SUPPLEMENTAL PART I INFORMATION
Name & AgeCurrent (Year First Elected to Office) and Recent Offices & Positions
David T. Popwell
Age: 62
President—Specialty Banking of First Horizon & the Bank (2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Popwell assumed the role of President—Specialty Banking of First Horizon and the Bank. Prior to the merger, starting in 2007, he served in several roles, the most recent of which (before his current role) was President—Regional Banking (2013-2020). From 2004 to 2007 Mr. Popwell was President of SunTrust Bank—Memphis, and prior to that was an Executive Vice President of National Commerce Financial Corp.
Anthony J. Restel
Age: 52
President—Regional Banking of First Horizon & the Bank (2021)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Restel assumed the role of Senior Executive Vice President—Chief Operating Officer of First Horizon and the Bank. From July to November 2021, Mr. Restel also acted as interim Chief Financial Officer. Prior to the merger, he had several roles with IBERIABANK Corporation and IBERIABANK starting in 2001, the most recent of which was Vice Chairman and Chief Financial Officer (2005-2020). During his tenure as Chief Financial Officer, Mr. Restel also served as Chief Credit Officer of IBERIABANK (2007-2009).
Susan L. Springfield
Age: 57
Senior Executive Vice President—Chief Credit Officer of First Horizon & the Bank (2013)
Ms. Springfield assumed the role of Executive Vice President—Chief Credit Officer of First Horizon & the Bank in 2013, with “Senior” added to her title in 2020. Previously, starting in 1998, she served the Bank in several roles, the most recent of which (before her current role) was Executive Vice President—Commercial Banking (2011-2013).

Selected Other Corporate Officers
Clyde A. Billings, Jr.
Senior Vice President, Assistant General Counsel, and Corporate Secretary
Dane P. Smith
Senior Vice President
Corporate Treasurer




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2021 FORM 10-K ANNUAL REPORT

ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6.
PART II


Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market for Our Common Stock; Common Shareholders
Our sole class of common stock, $0.625 par value, is listed and trades on the New York Stock Exchange LLC under the symbol FHN. At December 31, 2021, there were
approximately 9,426 shareholders of record of our common stock.
Sales of Unregistered Common and Preferred Stock
Common Stock. Not applicable.
Preferred Stock. Not applicable.
Repurchases by Us of Our Common Stock
Under authorizations from our Board of Directors, we may repurchase shares from time to time for general purposes and for our stock option and other compensation plans, subject to market conditions, accumulation of excess equity, prudent capital management, and legal and regulatory restrictions. We evaluate the level of capital and take action designed to generate or use capital as appropriate for the interests of the shareholders.
Additional information concerning repurchase activity during the final three months of 2021 is presented in Tables 7.22a and 7.22b, and the surrounding notes and other text under the caption Common Stock Purchase Programs beginning on page 89 of our 2021 MD&A (Item 7), which information is incorporated herein by this reference.

Total Shareholder Return Performance Graph
The “Total Shareholder Return 2016-2021” performance graph appearing on the next page, along with Table 5.1, is “furnished” and not “filed” as part of this report, and is not deemed to be soliciting material. Notwithstanding anything to the contrary set forth in this report or in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including this report in whole or in part, neither the “Total Shareholder Return 2016-2021” performance graph nor Table 5.1 shall be incorporated by reference into any such filings.
The “Total Shareholder Return 2016-2021” performance graph compares the yearly percentage change in our cumulative total shareholder return with returns based on the Standards and Poor’s 500 and Keefe, Bruyette & Woods (KBW) Nasdaq and Regional Bank Indices. The graph assumes $100 is invested on December 31, 2016 and dividends are reinvested. Returns are market-capitalization weighted.
At year-end 2019 and earlier, First Horizon was included in the KBW Regional Bank Index. At year-end 2021 and 2020, First Horizon is included in the KBW Nasdaq Bank Index. The change in index resulted from the merger of equals in 2020 between First Horizon and IBERIABANK Corporation.


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ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6.

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Table 5.1
TOTAL SHAREHOLDER RETURN DATA
201620172018201920202021
First Horizon Corporation$100.00 $101.94 $68.98 $89.97 $73.62 $97.64 
S&P 500 Index100.00 121.82 116.47 153.13 181.29 233.28 
KBW Nasdaq Bank Index (BKX)100.00 118.59 97.59 132.84 119.15 164.83 
KBW Regional Bank Index (KRX)100.00 101.81 84.00 104.05 95.02 129.84 
Source: Bloomberg


Item 6.    [reserved]




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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

TABLE OF ITEM 7 TOPICS



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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Introduction
First Horizon Corporation (NYSE common stock trading symbol “FHN”) is a financial holding company headquartered in Memphis, Tennessee. FHN’s principal subsidiary, and only banking subsidiary, is First Horizon Bank. Through the Bank and other subsidiaries, FHN offers regional banking, mortgage lending, title insurance, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management, capital markets, and other financial services to commercial, consumer, and governmental clients throughout the U.S. At December 31, 2021, FHN had over 500 business locations in 22 states, including over 400
banking centers in 12 states, and employed more than 7,500 associates.

The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of FHN. It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, as well as with the other information contained in this report.
Executive Overview
Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the “First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 27, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company
Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).
In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Proposed TD Merger.
Refer to 2022 Merger Agreement with Toronto-Dominion Bank in Item 1, beginning on page 15, for additional information.
IBKC Merger of Equals
On July 1, 2020, FHN completed its merger of equals with IBERIABANK Corporation. FHN's financial results for 2021 reflect the first full calendar year of operations for the
combined Company. Results for 2020 reflect legacy FHN results prior to the completion of the merger and results from both FHN and IBKC from the merger closing date


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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
forward. FHN expects to achieve its targeted $200 million of pre-tax annualized merger cost saves by the fourth quarter of 2022.
Banking Center Optimization
Banking clients’ utilization of digital capabilities to transact and purchase products and services has been on the rise, and the impact of the COVID-19 pandemic has accelerated this trend. In connection with the IBKC merger and the related impact of the pandemic, FHN conducted a comprehensive analysis of its enterprise-wide digital
platforms and its banking center network. As a result, FHN determined that it was prudent to accelerate banking center closures in certain markets, resulting in the closure of 65 banking centers in 2021 and 10 banking centers in first quarter 2022.
2021 Financial Performance Summary
FHN reported net income available to common shareholders of $962 million, or $1.74 per diluted share, compared to net income of $822 million, or $1.89 per diluted share in 2020 which included a $533 million benefit, or $1.23 per diluted share, tied to an IBKC merger net purchase accounting gain.
Net interest income of $2.0 billion increased $332 million from 2020 driven by an increase in average interest-earning assets as a result of the IBKC merger. Results also reflect the benefit of lower deposit costs, which helped to partially offset the impact of lower interest rates on earning assets.
The provision for credit losses was a benefit of $310 million compared to an expense of $503 million in 2020, largely reflecting continued improvement in the overall macroeconomic outlook, positive credit grade migration, and lower loan balances. The provision expense for 2020 was impacted by the adoption of CECL, deterioration in the overall macroeconomic outlook attributable to the COVID-19 pandemic and additional provision related to acquired non-PCD loans.
Noninterest income of $1.1 billion decreased $416 million from 2020, largely driven by the $533 million purchase accounting gain from the IBKC merger in 2020. Results also reflect higher fee income from the full-year impact of the IBKC merger.
Noninterest expense of $2.1 billion increased $378 million from 2020 driven by the impact of the IBKC merger.
FHN continued to maintain strong capital measures in 2021. The Tier 1 risk-based capital and total risk-based capital ratios at December 31, 2021 were 11.04% and 12.34%, respectively, compared to 10.74% and 12.57% at December 31, 2020. The CET1 ratio was 9.92% at December 31, 2021 compared to 9.68% at December 31, 2020.



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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)

Table 7.1
KEY PERFORMANCE INDICATORS
For the years ended December 31,
(Dollars in millions, except per share data)202120202019
Pre-provision net revenue (a)$974 $1,436 $631 
Diluted earnings per common share$1.74 $1.89 $1.38 
Return on average assets (b)1.15 %1.33 %1.08 %
Return on average common equity (c)12.53 %13.66 %9.60 %
Return on average tangible common equity (a) (d)16.46 %19.03 %14.71 %
Net interest margin (e)2.48 %2.86 %3.28 %
Noninterest income to total revenue (f)34.77 %47.41 %35.08 %
Efficiency ratio (g)68.56 %54.37 %66.15 %
Allowance for loan and lease losses to total loans and leases1.22 %1.65 %0.64 %
Net charge-offs (recoveries) to average loans and leases %0.26 %0.09 %
Total period-end equity to period-end assets9.53 %9.86 %11.72 %
Tangible common equity to tangible assets (a)6.73 %6.89 %7.48 %
Cash dividends declared per common share$0.60 $0.60 $0.56 
Book value per common share$14.39 $13.59 $15.04 
Tangible book value per common share (a)$11.00 $10.23 $10.02 
Common equity Tier 19.92 %9.68 %9.20 %
Market capitalization$8,713 $7,082 $5,158 
(a)Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 7.30.
(b)Calculated using net income divided by average assets.
(c)Calculated using net income available to common shareholders divided by average common equity.
(d)Calculated using net income available to common shareholders divided by average tangible common equity.
(e)Net interest margin is computed using total net interest income adjusted to an FTE basis assuming a statutory federal income tax rate of 21% and, where applicable, state income taxes.
(f)Ratio is noninterest income excluding securities gains (losses) to total revenue excluding securities gains (losses).
(g)Ratio is noninterest expense to total revenue excluding securities gains (losses).
Results of Operations—2021 compared to 2020
Net Interest Income
Net interest income is FHN's largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on average interest-earning assets and the effective cost of interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates.
Net interest income of $2.0 billion in 2021 increased 20% from 2020 driven by the impact of the IBKC merger. Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower interest-earning asset yields and spreads.
FHN's net interest margin decreased 38 basis points from 2020 to 2.48% in 2021 and the net interest spread decreased 32 basis points to 2.36% over the same period. Net interest margin and net interest spread were unfavorably impacted by a 58 basis point decrease in earning asset yields, largely reflecting the impact of lower interest rates and higher levels of excess cash. The lower yield on earning assets was partially offset by a 26 basis point decrease in the cost of interest-bearing liabilities driven by lower deposit costs.
The following table presents the major components of net interest income and net interest margin:





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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table 7.2
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS/RATES
(Dollars in millions)202120202019
Assets:Average BalanceInterest Income/ExpenseYield/Rate Average BalanceInterest Income/ExpenseYield/Rate Average BalanceInterest Income/ExpenseYield/Rate
Loans and leases:
  Commercial loans and leases$44,325 $1,498 3.38 %$36,146 $1,324 3.66 %$22,385 $1,091 4.87 %
  Consumer loans11,973 469 3.92 10,037 407 4.05 6,804 311 4.57 
Total loans and leases56,298 1,967 3.49 46,183 1,731 3.75 29,189 1,402 4.80 
Loans held for sale956 33 3.44 835 30 3.60 578 31 5.39 
Investment securities8,623 123 1.43 6,464 106 1.64 4,510 121 2.69 
Trading securities1,366 30 2.17 1,433 35 2.44 1,415 47 3.33 
Federal funds sold37  0.15 42 — 0.21 48 2.63 
Securities purchased under agreements to resell (a)584  (0.09)505 0.45 555 11 1.96 
Interest-bearing deposits with banks13,123 17 0.13 3,006 0.14 871 20 2.18 
Total earning assets / Total interest income $80,987 $2,170 2.68 %$58,468 $1,909 3.26 %$37,166 $1,633 4.39 %
Cash and due from banks1,261 852 602 
Goodwill and other intangible assets, net 1,836 1,696 1,575 
Premises and equipment, net 712 604 467 
Allowance for loan and lease losses (834)(700)(191)
Other assets 3,647 3,426 2,125 
Total assets $87,609 $64,346 $41,744 
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
  Savings$27,283 $36 0.13 %$19,780 $82 0.41 %$11,663 $144 1.24 %
  Other interest-bearing deposits15,688 20 0.13 11,973 31 0.26 8,345 79 0.94 
  Time deposits4,281 25 0.57 4,347 39 0.90 4,262 84 1.97 
Total interest-bearing deposits47,252 81 0.17 36,100 152 0.42 24,270 307 1.27 
Federal funds purchased949 1 0.12 862 0.34 738 15 2.08 
Securities sold under agreements to repurchase1,235 4 0.30 1,109 0.50 701 15 2.07 
Trading liabilities540 6 1.11 457 1.24 503 13 2.48 
Other short-term borrowings124  0.09 626 0.84 538 11 2.10 
Term borrowings1,645 72 4.37 1,578 64 4.02 1,117 53 4.77 
Total interest-bearing liabilities / Total interest expense$51,745 $164 0.32 %$40,732 $236 0.58 %$27,867 $414 1.49 %
Noninterest-bearing deposits25,879 15,779 8,133 
Other liabilities1,506 1,226 824 
Total liabilities 79,130 57,737 36,824 
Shareholders' equity8,184 6,314 4,625 
Noncontrolling interest295 295 295 
Total shareholders' equity8,479 6,609 4,920 
Total liabilities and shareholders' equity$87,609 $64,346 $41,744 
Net earnings assets / Net interest income (TE) / Net interest spread$29,242 $2,006 2.36 %$17,736 $1,673 2.68 %$9,299 $1,219 2.90 %
Taxable equivalent adjustment(12)0.12 (11)0.18 (9)0.38 
Net interest income / Net interest margin (b)$1,994 2.48 %$1,662 2.86 %$1,210 3.28 %
(a) Negative yield is driven by negative market rates on reverse repurchase agreements.
(b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21%, and where applicable, state income taxes.


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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
The following table presents the change in interest income and interest expense due to changes in both average volume and average rate.

Table 7.3
ANALYSIS OF CHANGES IN NET INTEREST INCOME
2021 Compared to 20202020 Compared to 2019
Increase (Decrease) Due to (a)
Increase (Decrease) Due to (a)
(Dollars in millions)
Rate (b)
Volume (b)
 Total
Rate (b)
Volume (b)
 Total
Interest income:
Loans and leases$(119)$354 $235 $(361)$689 $328 
Loans held for sale(1)4 3 (12)11 (1)
Investment securities(15)31 16 (58)42 (16)
Trading securities(4)(1)(5)(12)— (12)
Other earning assets:
Federal funds sold   (1)— (1)
Securities purchased under agreements to resell(3)1 (2)(8)(1)(9)
Interest-bearing deposits with banks  13 13 (30)15 (15)
Total other earning assets(3)14 11 (39)14 (25)
Total change in interest income - earning assets $(142)$402 $260 $(482)$756 $274 
Interest expense:
Interest-bearing deposits:
Savings$(69)$23 $(46)$(129)$66 $(63)
Time deposits(14) (14)(47)(45)
Other interest-bearing deposits(19)8 (11)(72)25 (47)
Total interest-bearing deposits(102)31 (71)(248)93 (155)
Federal funds purchased(2) (2)(14)(12)
Securities sold under agreements to repurchase(3) (3)(13)(8)
Trading liabilities(1)1  (6)(1)(7)
Other short-term borrowings1 (5)(4)(9)(7)
Term borrowings5 3 8 (9)20 11 
Total change in interest expense - interest-bearing liabilities(102)30 (72)(299)121 (178)
Net interest income $(40)$372 $332 $(183)$635 $452 
(a)     The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.
(b)    Variances are computed on a line-by-line basis and are non-additive.


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2021 FORM 10-K ANNUAL REPORT

ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Provision for Credit Losses
Provision for credit losses includes the provision for loan and lease losses and the provision for unfunded lending commitments. The provision for credit losses is the expense necessary to maintain the ALLL and the accrual for unfunded lending commitments at levels appropriate to absorb management’s estimate of credit losses expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments.
Provision for credit losses improved to a provision benefit of $310 million in 2021, compared to an expense of
$503 million in 2020, largely reflecting an improvement in the overall macroeconomic outlook, positive credit grade migration and lower loan balances. The provision in 2020 was driven by the adoption of CECL and the impact of the COVID-19 pandemic on loss expectations. Results in 2020 also reflect the impact of the IBKC merger and Truist branch acquisition, including $147 million related to non-PCD loans. For additional information about general asset quality trends refer to the Asset Quality section in this MD&A.
Noninterest Income
The following table presents the significant components of noninterest income for each of the periods presented:
Table 7.4
NONINTEREST INCOME
2021 vs. 20202020 vs. 2019
(Dollars in millions)202120202019$ Change % Change$ Change% Change
Noninterest income
Fixed income$406 $423 $279 $(17)(4)%$144 52 %
Deposit transactions and cash management175 148 132 27 18 %16 12 %
Mortgage banking and title income154 129 10 25 19 %119 NM
Brokerage, management fees and commissions88 66 55 22 33 %11 20 %
Card and digital banking fees78 60 49 18 30 %11 22 %
Trust services and investment management51 39 30 12 31 %30 %
 Other service charges and fees44 26 21 18 69 %24 %
Securities gains (losses), net13 (6)— 19 NM(6)(100)%
Purchase accounting gain(1)533 — (534)(100)%533 100 %
Other income68 74 78 (6)(8)%(4)(5)%
Total noninterest income$1,076 $1,492 $654 $(416)(28)%$838 128 %
NM – Not meaningful
Noninterest income totaled $1.1 billion in 2021 and $1.5 billion in 2020, or 35% and 47% of total revenue, respectively. The decrease in noninterest income in 2021 was driven by a $534 million reduction tied to the purchase accounting gain recorded in 2020 related to the IBKC merger. Results also reflect the benefit of higher fee income largely driven by the full-year impact of the IBKC merger.
Fixed income revenues are mainly generated from the purchase and sale of fixed income securities as both principal and agent. Other noninterest revenues within this line item consist principally of fees from derivative sales, portfolio advisory services and loan sales. Fixed income fees of $406 million decreased $17 million from exceptionally strong levels in 2020. Fixed income product revenue decreased $10 million, reflecting slightly less favorable market conditions, while revenue from other
products decreased $7 million, largely driven by lower fees from derivative and loan sales, somewhat offset by higher fees from portfolio advisory services. Fixed income average daily revenue of $1.4 million in 2021 decreased slightly from $1.5 million in 2020.
Deposit transactions and cash management fees of $175 million increased $27 million, or 18%, from 2020, primarily driven by the impact of the IBKC merger and Truist branch acquisition.
Mortgage banking and title income of $154 million increased $25 million from $129 million in 2020 as the benefit of the IBKC merger was partially offset by a strategic shift in origination mix toward portfolio loans as well as lower spreads on sales of mortgage loans.
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and


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annuity and mutual funds sales. These fees and commissions totaled $88 million in 2021, an increase of 33% compared to $66 million in 2020 driven by the impact of the IBKC merger and an increase in annuity income and advisory fees.
Trust services and investment management income of $51 million increased $12 million from 2020, driven by the impact of the IBKC merger as well as new business and market appreciation.
The IBKC merger also drove the increases in card and digital banking fees and other service charges and fees in 2021 compared to 2020.
Other income in 2021 included a $26 million loss on the redemption of legacy IBKC trust preferred securities.

Noninterest Expense
The following table presents the significant components of noninterest expense for each of the periods presented:
Table 7.5
NONINTEREST EXPENSE
2021 vs. 20202020 vs. 2019
(Dollars in millions)202120202019$ Change% Change$ Change% Change
Noninterest expense
Personnel expense$1,210 $1,033 $695 $177 17 %$338 49 %
Net occupancy expense137 116 80 2118 %3645 %
Computer software116 85 61 3136 %2439 %
Operations services80 56 46 2443 %1022 %
Legal and professional fees68 84 72 (16)(19)%1217 %
Contract employment and outsourcing67 24 13 43NM1185 %
Amortization of intangible assets56 40 25 1640 %1560 %
Equipment expense47 42 34 512 %824 %
Communications and delivery373125619 %624 %
Advertising and public relations37183419NM(16)(47)%
Impairment of long-lived assets34 23 27NM(16)(70)%
Contributions14 41 11 (27)(66)%30NM
Other expense1931411145237 %2724 %
Total noninterest expense$2,096 $1,718 $1,233 $378 22 %$485 39 %
NM - Not meaningful
Total noninterest expense of $2.1 billion increased $378 million, or 22%, driven by the impact of the IBKC merger, mitigated in part by a reduction in noninterest expense as a result of expense discipline and merger cost saves. Total merger/acquisition integration expense was $187 million in 2021 compared to $155 million in 2020.
Personnel expense of $1.2 billion increased $177 million from 2020 driven by the full-year impact of the IBKC merger and Truist branch acquisition. Results also reflect lower merger/acquisition integration expenses of $10 million, primarily severance and retention costs, and the benefit of merger cost saves. Deferred compensation expense, a component of personnel expense, increased $9 million in 2021, largely due to $6 million from litigation tied to a company that was fully divested over ten years ago.
The increases in net occupancy expense and computer software expense in 2021 were both driven by the impact of the IBKC merger and Truist branch acquisition.
Operations services expense increased $24 million, or 43%, to $80 million in 2021, driven by the impact of the IBKC merger and a $7 million increase in merger/acquisition integration expense.
Legal and professional fees decreased $16 million, or 19%, to $68 million in 2021, driven by an $18 million decline in merger/acquisition integration expense.
Contract employment and outsourcing increased $43 million driven by the impact of the IBKC merger, higher contractor costs tied to investments in new systems and an $11 million increase in merger/acquisition integration expense.


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Amortization of intangible assets of $56 million in 2021 increased $16 million compared to 2020 primarily due to amortization tied to the intangible assets created from the IBKC merger.
Advertising and public relations of $37 million increased $19 million from 2020 largely driven by a $10 million increase in merger/acquisition integration expense.
Impairment of long-lived assets of $34 million and $7 million in 2021 and 2020, respectively, was primarily related to merger integration efforts associated with reduction of leased office space and banking center optimization.
Contributions decreased $27 million in 2021, primarily due to a $20 million contribution to the Louisiana First Horizon
Foundation in connection with the IBKC merger and a $15 million donation of Paycheck Protection Plan fees to the First Horizon Foundation to assist low- and moderate-income communities in 2020. Contributions in 2021 reflect an increase in other contributions to the First Horizon Foundation.
The $52 million increase in other expense in 2021 was largely attributable to $19 million in derivative valuation adjustments on prior Visa Class B share sales and increases in customer relations, loan closing, fraud, and travel and entertainment expenses.

Income Taxes
FHN recorded income tax expense of $274 million in 2021 compared to $76 million in 2020, resulting in an effective tax rate of 21.4% and 8.2% respectively. The lower effective tax rate in 2020 was primarily the result of the purchase accounting gain from the IBKC merger, which was not included in taxable income.
FHN’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and tax credits and other tax benefits from tax credit investments. The effective rate is unfavorably affected by the non-deductibility of portions of: FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations.
A deferred tax asset or deferred tax liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying current enacted statutory tax rates to these temporary differences in future years. FHN’s net DTA was $52 million and less than $1 million at December 31, 2021 and 2020, respectively.
As of December 31, 2021, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $38 million and $2 million, which will
expire at various dates. Refer to Note 15 - Income Taxes for additional information.
FHN’s gross DTA after valuation allowance was $448 million and $471 million as of December 31, 2021 and 2020, respectively. Based on current analysis, FHN believes that its ability to realize the DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN’s taxable earnings outlook could result in the need for a valuation allowance.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of limitations for FHN’s consolidated federal income tax returns remains open for tax years 2018 through 2020. Additionally, 2016 – 2017 could be subject to limited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under examination by the IRS. On occasion, as federal or state auditors examine the tax returns of FHN and its subsidiaries, FHN may extend the statute of limitations for a reasonable period. Otherwise, the statutes of limitations remain open only for tax years in accordance with federal and state statutes. See Note 15 - Income Taxes for additional information.
Business Segment Results
During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. The closing of the FHN and IBKC merger of equals transaction prompted organizational changes to better integrate and execute the combined Company's
strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for years prior to 2020 have been recast to adjust for the realignment of the segment reporting structure. See Note 20 - Business Segment Information for


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additional disclosures related to FHN's operating segments.
Regional Banking
The Regional Banking segment generated pre-tax income of $1.3 billion in 2021 compared to $273 million in 2020, reflecting the impact of the IBKC merger and a decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook, positive credit grade migration and lower loan balances.
Net interest income increased $500 million, or 40%, in 2021, largely driven by merger-related earning asset growth. Results also reflect the benefit of lower deposit costs which helped to partially offset the impact of lower interest-earning asset yields and spreads.
Noninterest income increased $93 million, or 27%, largely attributable to increases in fee income driven by the impact of the IBKC merger.
Noninterest expense of $1.2 billion in 2021, increased $207 million, or 22%, from 2020, primarily as a result of the impact of the IBKC merger, mitigated in part by expense discipline and the benefit of merger cost saves.
Specialty Banking
Pre-tax income in the Specialty Banking segment increased $171 million to $709 million in 2021, largely driven by a decrease of $180 million in the provision for credit losses.
Net interest income increased $47 million, or 8%, in 2021 largely driven by merger-related earning asset growth. Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower interest-earning asset yields and spreads.
Noninterest income increased $21 million, or 4%, from 2020. Mortgage banking and title income increased $24 million, or 19%, as the benefit of the IBKC merger was offset by an intentional shift in origination mix toward portfolio loans as well as lower gain on sale spreads. Fixed income was down $16 million, or 4%, from 2020, reflecting slightly less favorable market conditions and lower fees from derivative and loan sales, somewhat offset by higher fees from portfolio advisory services.
Noninterest expense increased $77 million, or 16%, to $571 million in 2021, largely attributable to higher personnel and outside services costs from the impact of the IBKC merger.
Corporate
Pre-tax loss for the Corporate segment was $705 million for 2021 compared to pre-tax income of $122 million for 2020. Results for 2021 reflect a decline in revenue largely tied to the IBKC purchase accounting gain in 2020, a $215 million decrease in net interest income resulting from the impact of funds transfer pricing, and a $26 million loss on the redemption of legacy IBKC trust preferred securities in 2021. In addition, noninterest expense increased $94 million, largely attributable to merger and integration-related costs including asset impairments associated with the reduction of leased office space and banking center optimization as well as $19 million in derivative valuation adjustments on prior Visa Class B share sales.
Results of Operations—2020 compared to 2019
For a description of FHN's results of operations for 2020, see Results of Operations - 2020 compared to 2019 in Item 7 in the 2020 Form 10-K.


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Analysis of Financial Condition
Investment Securities
The following table presents the carrying value of securities by category as of December 31 for the years indicated:
Table 7.6
COMPOSITION OF SECURITIES PORTFOLIO
20212020
(Dollars in millions)BalanceMixBalanceMix
Securities available for sale:
U.S. treasuries$  %$613 %
Government agency issued MBS and CMO7,312 78 6,218 77 
Other U.S. government agencies (a)850 9 684 
Corporate and other debt  40 — 
States and municipalities545 6 460 
SBA interest-only strips  32 — 
Total securities available for sale$8,707 93 %$8,047 100 %
Securities held to maturity:
Government agency issued MBS and CMO$712 7 %$— — %
Corporate and other debt  10 — 
Total securities held to maturity$712 7 %$10 — %
Total investment securities $9,419 100 %$8,057 100 %
(a) Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.

FHN’s investment portfolio consists principally of debt securities available for sale. FHN maintains a highly-rated securities portfolio consisting primarily of government agency issued mortgage-backed securities and collateralized mortgage obligations. The securities portfolio provides a source of income and liquidity and is an important tool used to balance the interest rate risk of the loan and deposit portfolios. The securities portfolio is periodically evaluated in light of established ALM objectives, changing market conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which FHN is exposed. These evaluations may result in steps taken to adjust the overall balance sheet positioning. During the third quarter of 2021, in order to improve net
interest income and moderate a portion of its overly asset sensitive interest rate risk position, FHN began deploying excess cash into the investment portfolio by purchasing securities classified as held to maturity.
Investment securities were $9.4 billion and $8.1 billion on December 31, 2021 and 2020, representing 11% and 10% of total assets, respectively. See Note 3 - Investment Securities for more information about the securities portfolio.
The following table presents an analysis of the amortized cost, remaining contractual maturities, and weighted-average yields by contractual maturity for the debt securities portfolio.


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Table 7.7
CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES
As of December 31, 2021
  After 1 yearAfter 5 years
Within 1 yearWithin 5 yearsWithin 10 yearsAfter 10 years
(Dollars in millions)AmountYield (b)AmountYield (b)AmountYield (b)AmountYield (b)
Securities available for sale:
Government agency issued MBS and CMO (a)$19 1.33 %$532 1.64 %$1,259 1.45 %$5,548 1.53 %
Other U.S. government agencies12 2.88 49 2.04 197 1.41 603 1.64 
States and municipalities0.69 100 0.69 154 1.41 276 2.30 
Total securities available for sale$36 1.80 %$681 1.53 %$1,610 1.44 %$6,427 1.57 %
Securities held to maturity:
Government agency issued MBS and CMO (a)— — %— — %— — %712 1.82 %
Total securities held to maturity$— — %$— — %$— — %$712 1.82 %
(a)    Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early pay downs, have an estimated average life of 4.8 years.
(b)    Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 25% tax rate where applicable.
Loans and Leases
Period-end loans and leases decreased $3.4 billion, or 6%, to $54.9 billion as of December 31, 2021, driven by a $2.2 billion decrease in commercial loans primarily tied to a $3.0 billion decrease in PPP loans, offset by other C&I growth, and a $1.2 billion decrease in consumer loans. Average loans and leases increased to $56.3 billion in 2021 compared to $46.2 billion in 2020 primarily from the full
year inclusion of acquired IBKC loans in 2021, offset by declines in PPP loans and other consumer real estate loan activity.
The following table provides detail regarding FHN's loans and leases:

Table 7.8
 LOANS AND LEASES
(Dollars in millions)2021Percent of total2021 Growth Rate2020 (a)Percent of total 2020 Growth Rate (a)2019Percent of total2019 Growth Rate
Commercial:
Commercial, financial, and industrial (b)$31,068 57 %(6)%$33,104 57 %65 %$20,051 65 %21 %
Commercial real estate12,109 22 (1)12,275 21 183 4,337 14 
Total commercial43,177 79 (5)45,379 78 86 24,388 79 19 
Consumer:
Consumer real estate 10,772 20 (8)11,725 20 90 6,177 20 (5)
Credit card and other910 1 (19)1,128 127 496 (4)
Total consumer11,682 21 (9)12,853 22 93 6,673 21 (5)
Total loans and leases$54,859 100 %(6)%$58,232 100 %87 %$31,061 100 %13 %
(a)    2020 includes the impact of balances related to the IBKC merger on July 1, 2020 and Truist Bank branch acquisition on July 17, 2020.
(b)    Includes equipment financing loans and leases.



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C&I loans are the largest component of the loan and lease portfolio, comprising 57% of total loans and leases in both 2021 and 2020. C&I loans decreased 6%, or $2.0 billion, from 2020 largely driven by a decrease in PPP loans and loans to mortgage companies. Excluding PPP loans, C&I loans increased $978 million, attributable to Regional Banking growth. Growth in other specialty lending areas within Specialty Banking, such as real estate rental and leasing, also meaningfully contributed to the overall growth in non-PPP C&I loans from 2020. Commercial real
estate loans decreased 1% to $12.1 billion in 2021, attributable to a decline in Specialty Banking loans.
Total consumer loans decreased 9%, or $1.2 billion, from the end of 2020, largely driven by paydowns in real estate installment loans and home equity lines of credit.
The following table provides detail of contractual maturities at December 31, 2021.

Table 7.9
CONTRACTUAL MATURITIES OF LOANS AND LEASES
(Dollars in millions)Within 1 YearAfter 1 Year
Within 5 Years
After 5 Years Within 15 YearsAfter 15 YearsTotal
Commercial, financial, and industrial$8,174 $15,095 $7,023 $776 $31,068 
Commercial real estate2,007 6,939 3,085 78 12,109 
Consumer real estate93 414 1,706 8,559 10,772 
Credit card and other336 428 82 64 910 
   Total loans and leases $10,610 $22,876 $11,896 $9,477 $54,859 
For maturities over one year at fixed interest rates:
Commercial, financial, and industrial$4,479 $4,294 $498 $9,271 
Commercial real estate1,954 1,103 44 3,101 
Consumer real estate297 1,380 3,076 4,753 
Credit card and other118 74 24 216 
Total loans and leases at fixed interest rates$6,848 $6,851 $3,642 $17,341 
For maturities over one year at floating interest rates:
Commercial, financial, and industrial$10,616 $2,729 $278 $13,623 
Commercial real estate4,985 1,982 34 7,001 
Consumer real estate117 326 5,483 5,926 
Credit card and other310 40 358 
Total loans and leases at floating interest rates$16,028 $5,045 $5,835 $26,908 
Total maturities over one year$22,876 $11,896 $9,477 $44,249 
Because of various factors, the contractual maturities of consumer loans are not indicative of the actual lives of such loans. A significant component of FHN’s loan portfolio consists of consumer real estate loans, a majority of which are home equity lines of credit and home equity installment loans. These loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both principal and interest over the remaining term. Numerous factors can contribute to the actual life of a home equity line or installment loan. As a result, the actual average life of home equity lines and loans is difficult to predict and changes in any of these factors could result in changes in projections of average lives.
Loans Held for Sale
In 2020, FHN obtained IBKC's mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards established by GSEs that are major investors in U.S. home mortgages but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis.
The legacy FHN loans HFS portfolio consists of small business, other consumer loans, mortgage warehouse, USDA, student, and home equity loans.


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On December 31, 2021, loans HFS were $1.2 billion, a $150 million increase compared to December 31, 2020. On an average basis, HFS loans increased to $956 million in 2021 from $835 million in 2020, generally driven by the additional volume of mortgage loans originated with the
IBKC merger. Held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure totaled $3 million and $2 million at December 31, 2021 and 2020, respectively.
Asset Quality
Loan and Lease Portfolio Composition
FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing greater deterioration than other
components of the loan portfolio, management may determine the ALLL at a more granular level. Commercial loans are composed of C&I loans and CRE loans. Consumer loans are composed of consumer real estate loans and credit card and other loans.
Underwriting Policies and Procedures
The following sections describe each portfolio as well as general underwriting procedures for each. As economic and real estate conditions develop, enhancements to underwriting and credit policies and procedures may be necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups and management risk committees comprised of business line managers and credit administration professionals as well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executives and/or senior managers leading the applicable credit risk working groups as well as by management risk committees.
The credit risk working groups and management risk committees strive to ensure that the approved policies and procedures address the associated risks and establish reasonable underwriting criteria that appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at established review dates or earlier if changes in the economic environment, portfolio performance, the size of portfolio or industry concentrations, or regulatory guidance warrant an earlier review.
Commercial Loan and Lease Portfolios
FHN’s commercial loan approval process grants lending authority based upon job description, experience, and performance. The lending authority is delegated to the business line (Market Managers, Departmental Managers, Regional Presidents, Relationship Managers (RM) and Portfolio Managers (PM) and to Credit Risk Managers. While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive management and approved by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates an RM and a PM for most commercial credits. The RM is primarily responsible for communications with the borrower and maintaining the relationship, while the PM is responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the servicing period. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are constructed with specific job attributes that facilitate
FHN’s ability to identify, mitigate, document, and manage ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing, including monitoring of the financial condition of the borrower and tracking compliance with loan agreements. Loan closing officers and the construction loan management unit specialize in loan documentation and the management of the construction lending process. FHN strives to identify problem assets early through comprehensive policies and guidelines, targeted portfolio reviews, more frequent servicing on lower rated borrowers, and an emphasis on frequent grading. For smaller commercial credits, generally $5 million or less, and income-producing CRE credits greater than $10 million to non-professional real estate developers and smaller professional real estate investors/developers, FHN utilizes a centralized underwriting unit in order to originate and grade small business loans more efficiently and consistently.
FHN may utilize availability of guarantors/sponsors to support commercial lending decisions during the credit


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underwriting process and when determining the assignment of internal loan grades. Reliance on the guaranty as a viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to perform until there is any current or prior indication or future expectation that the guarantor may not willingly and voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio totaled $31.1 billion as of December 31, 2021 and is comprised of loans used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, PPP loans, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit.
C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes applying minimum underwriting standards as well as separation of origination and credit approval roles on transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the applicable industry of the borrower, analysis of the borrower’s available financial information, identification and analysis of the various sources of repayment and identification of the primary risk
attributes. Stress testing the borrower’s financial capacity, adherence to loan documentation requirements, and assigning credit risk grades using internally developed scorecards are also used to help quantify the risk when appropriate. Underwriting parameters also include loan-to-value ratios which vary depending on collateral type, use of guaranties, loan agreement requirements, and other recommended terms such as equity requirements, amortization, and maturity. Approval decisions also consider various financial ratios and performance measures of the borrowers, such as cash flow and balance sheet leverage, liquidity, coverage of fixed charges, and working capital. Additionally, approval decisions consider the capital structure of the borrower, sponsorship, and quality/value of collateral. Generally, guideline and policy exceptions are identified and mitigated during the approval process. Pricing of C&I loans is based upon the determined credit risk specific to the individual borrower. Historically, these loans typically have had variable rates tied to the LIBOR or prime rate of interest plus or minus the appropriate margin. However, with the upcoming cessation of LIBOR, FHN no longer references LIBOR in new loan contracts, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
A $3.0 billion decrease in PPP loans drove the total decrease from December 31, 2020. Excluding PPP loans, C&I growth was $978 million, or 3%. The largest geographical concentrations of balances as of December 31, 2021 were in Tennessee (20%), Florida (12%), Texas (10%), North Carolina (7%), Louisiana (7%), California (7%), and Georgia (5%), with no other state representing more than 5% of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of December 31, 2021 and 2020. For purposes of this disclosure, industries are determined based on the NAICS industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the U.S. business economy.


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Table 7.10
C&I PORTFOLIO BY INDUSTRY 
December 31, 2021December 31, 2020
(Dollars in millions)AmountPercentAmountPercent
Industry:
Loans to mortgage companies$4,518 15 %$5,404 16 %
Finance and insurance3,483 11 3,130 10 
Real estate rental & leasing (a)2,771 9 2,365 
Health care and social assistance2,413 8 2,689 
Accommodation & food service2,221 7 2,303 
Manufacturing1,950 6 1,907 
Wholesale trade1,845 6 2,079 
Retail trade1,532 5 1,531 
Energy1,325 4 1,686 
Other (professional, construction, transportation, etc) (b)9,010 29 10,010 30 
Total C&I loan portfolio$31,068 100 %$33,104 100 %
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% for 2021.

Industry Concentrations
Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Loans to mortgage companies and borrowers in the finance and insurance industry were 26% of FHN’s C&I loan portfolio as of December 31, 2021, and as a result could be affected by items that uniquely impact the financial services industry. Except Loans to Mortgage Companies and Finance and Insurance, as discussed below, on December 31, 2021, FHN did not have any other concentrations of C&I loans in any single industry of 10% or more of total loans.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 15% of the C&I portfolio as of December 31, 2021, and 16% of the C&I portfolio as of December 31, 2020, and includes balances related to both home purchase and refinance activity. This portfolio generally fluctuates with mortgage rates and seasonal factors and includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally, lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. The decrease in loans to mortgage companies year over year was due to existing home supply shortages, construction labor and materials shortages, and a rise in mortgage rates. In 2021, approximately 48% of the loans funded were home purchases and 52% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 11% of the C&I portfolio as of December 31, 2021 compared to 10% at the end of 2020 and includes TRUPs (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As of December 31, 2021, asset-based lending to consumer finance companies represents approximately $1.4 billion of the finance and insurance component.
Paycheck Protection Program
In 2020, Congress created the Paycheck Protection Program (PPP) in response to the economic disruption associated with the COVID-19 pandemic. Under the PPP, qualifying businesses could receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.
The C&I portfolio as of December 31, 2021 included 8,372 loans made under the PPP with an aggregate principal balance of $1.0 billion, which are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a result, no ALLL was recorded for PPP loans as of December 31, 2021, and FHN assigned a risk weight of zero to PPP loans for regulatory capital purposes.


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For these loans, there were remaining net lender fees of approximately $17 million to be paid to FHN as of December 31, 2021. During 2021, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. Through December 31, 2021, approximately $5 billion of the original $6 billion in PPP loans originated by FHN and IBERIABANK prior to acquisition had been forgiven by the SBA.

Commercial Real Estate
The CRE portfolio totaled $12.1 billion as of December 31, 2021, a $166 million, or 1%, decrease compared to December 31, 2020.
The CRE portfolio includes both financings for commercial construction and non-construction loans. This portfolio contains loans and draws on lines and letters of credit for the construction and mini-permanent financing of income-producing real estate.
Residential CRE loans include loans to residential builders and developers for the purpose of constructing single-family homes, condominiums, and town homes, and on a limited basis, for developing residential subdivisions. After the fulfillment of existing commitments over the near term, the residential CRE class will be in a wind-down state with the expectation of full runoff in the foreseeable future.
Income-producing CRE loans are underwritten in accordance with credit policies and underwriting guidelines that are reviewed at least annually and revised as necessary based on market conditions. Loans are underwritten based upon project type, size, location, sponsorship, and other market-specific data. Generally, minimum requirements for equity, debt service coverage ratios, and level of pre-leasing activity are established based on perceived risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below regulatory prescribed ceilings and generally range between 50% and 80% depending on the underlying product set. Term and amortization requirements are set based on prudent standards for interim real estate lending. Equity requirements are established based on the quality and liquidity of the
primary source of repayment. For example, more equity would be required for a speculative construction project or land loan than for a property fully leased to a credit tenant or a roster of tenants. Typically, a borrower must have at least 15% of cost invested in a project before FHN will provide loan funding. Income properties are required to achieve a debt service coverage ratio greater than or equal to 125% at inception or stabilization of the project based on loan amortization and a minimum underwriting interest rate. Some product types that possess a greater risk profile require a higher level of equity, as well as a higher debt service coverage ratio threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income properties. A global cash flow analysis is performed at the sponsor level. The majority of the portfolio is on a floating rate basis tied to appropriate spreads over LIBOR. However, since January 1, 2022, no new loan contracts reference LIBOR, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
The credit administration and ongoing monitoring consists of multiple internal control processes. Construction loans are closed by a centralized control unit and construction loan management is administered centrally for loans $3 million and over. Underwriters and credit approval personnel stress the borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are utilized to assist with the assessment of the adequacy of the ALLL and to steer portfolio management strategies.
The largest geographical concentrations of CRE balances as of December 31, 2021 were in Florida (26%), Texas (12%), North Carolina (11%), Louisiana (10%), Tennessee (9%), and Georgia (8%) with no other state representing more than 5% of the portfolio. Subcategories of income-producing CRE loans consist of multi-family (25%), office (24%), retail (19%), industrial (12%), hospitality (11%), land/land development (2%), and other (7%).
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio totaled $10.8 billion as of December 31, 2021 and is primarily composed of home equity lines and installment loans.
The largest geographical concentrations of balances in the consumer real estate portfolio as of December 31, 2021 were in Florida (32%), Tennessee (23%), Louisiana (10%), North Carolina (8%), Texas (7%), and New York (5%), with no other state representing more than 5% of the portfolio.
As of December 31, 2021, approximately 87% of the consumer real estate portfolio was in a first lien position. As of December 31, 2021, the weighted average FICO score at origination of this portfolio was 755 and the refreshed FICO scores averaged 754, no significant change from FICO scores of 753 and 763, respectively, as of December 31, 2020. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.


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As of December 31, 2021 and 2020, FHN had held-to-maturity consumer mortgage loans secured by real estate totaling $20 million and $36 million, respectively, that were in the process of foreclosure.
HELOCs comprised $2.0 billion and $2.4 billion of the consumer real estate portfolio as of December 31, 2021 and December 31, 2020, respectively. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is frozen if a borrower becomes past due on payments. Once the draw period has concluded, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.
As of December 31, 2021, approximately 88% of FHN's HELOCs were in the draw period compared to 86% at the
end of the prior year. Based on when draw periods are scheduled to end per the line agreement, it is expected that $431 million, or 24%, of HELOCs currently in the draw period will enter the repayment period during the next 60 months. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement; however, after some seasoning, performance of these loans usually begins to stabilize. The home equity lines of the consumer real estate portfolio are monitored closely for those nearing the end of the draw period and borrowers are initially contacted at least 6 months before the repayment period begins to remind the client of the terms of their agreement and to inform them of options.
The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 7.11
HELOC DRAW TO REPAYMENT SCHEDULE 
 December 31, 2021December 31, 2020
(Dollars in millions)Repayment
Amount
PercentRepayment
Amount
Percent
Months remaining in draw period:
0-12$43 2 %$73 %
13-2442 2 66 
25-3650 3 62 
37-48136 8 67 
49-60160 9 187 
>601,324 76 1,662 79 
Total$1,755 100 %$2,117 100 %

Underwriting
For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value ratios, and debt-to-income ratios for each consumer real estate product. Applicants must have the financial capacity (or available income) to service the debt by not exceeding a calculated debt-to-income ratio. The amount of the loan is limited to a percentage of the lesser of the current appraised value or sales price of the collateral. Identified guideline and policy exceptions
require established mitigating factors that have been approved for use by Credit Risk Management.
HELOC interest rates are variable and adjust with movements in the index rate stated in the loan agreement. Such loans can have elevated risks of default, particularly in a rising interest rate environment, potentially stressing borrower capacity to repay the loan at the higher interest rate. FHN’s current underwriting practice requires HELOC borrowers to qualify based on a sensitized interest rate (above the current note rate), fully amortized payment methodology. FHN’s underwriting guidelines require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to FHN in the event of a sharp rise in interest rates over a relatively short time horizon.


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HELOC Portfolio Risk Management
FHN performs continuous HELOC account reviews in order to identify higher-risk home equity lines and initiate preventative and corrective actions. The reviews consider a number of account activity patterns and characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of loss to FHN.

Credit Card and Other
The credit card and other consumer loan portfolio, which is primarily within the Regional Banking segment, decreased $218 million from the prior year-end to $910 million as of December 31, 2021, driven by net repayments of consumer construction loans.
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Notes 1 and 5 of this Report.
The ALLL was $670 million as of December 31, 2021, or 1.22% of total loans and leases, a decrease of $293 million
or 43 basis points from the end of 2020, reflecting improvement in the macroeconomic forecast, positive credit grade migration, and lower loan balances. The ACL to total loans and leases ratio decreased to 1.34% as of December 31, 2021 from 1.80% as of December 31, 2020.
Consolidated Net Charge-offs
Net charge-offs were $2 million in 2021 compared to $120 million in 2020. As a percentage of average total loans and leases, net charge-offs improved 26 basis points from 2020.
Net charge-offs in the C&I portfolio were $13 million, a decrease of $107 million from 2020, driven by lower energy-related charge-offs as well as continued improvement in overall asset quality. Net charge-offs in
the commercial real estate portfolio were minimal in both 2021 and 2020.
In the consumer portfolio, net recoveries of $22 million in consumer real estate loans were offset by net charge-offs of $11 million in credit card and other loans. Net recoveries in the consumer loan portfolio in 2020 were $1 million.

Table 7.12
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
December 31
(Dollars in millions)202120202019
Allowance for loan and lease losses
C&I$334 $453 $123 
CRE154 242 36 
Consumer real estate163 242 28 
Credit card and other19 26 13 
Total allowance for loan and lease losses$670 $963 $200 
Reserve for remaining unfunded commitments
C&I$46 $65 $
CRE12 10 
Consumer real estate8 10 — 
Credit card and other — — 
Total reserve for remaining unfunded commitments $66 $85 $
Allowance for credit losses
C&I$380 $518 $127 
CRE166 252 38 


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Consumer real estate171 252 28 
Credit card and other19 26 13 
Total allowance for credit losses$736 $1,048 $206 
Period-end loans and leases
C&I$31,068 $33,104 $20,051 
CRE12,109 12,275 4,337 
Consumer real estate 10,772 11,725 6,177 
Credit card and other910 1,128 496 
  Total period-end loans and leases$54,859 $58,232 $31,061 
ALLL / loans and leases %
C&I1.07 %1.37 %0.62 %
CRE1.27 %1.97 %0.83 %
Consumer real estate1.51 %2.07 %0.45 %
Credit card and other2.14 %2.34 %2.68 %
   Total ALLL / loans and leases %1.22 %1.65 %0.64 %
ACL / loans and leases %
C&I1.22 %1.56 %0.63 %
CRE1.37 %2.05 %0.88 %
Consumer real estate1.59 %2.15 %0.45 %
Credit card and other2.09 %2.30 %2.62 %
   Total ACL / loans and leases %1.34 %1.80 %0.66 %
Net charge-offs (recoveries)
C&I$13 $120 $27 
CRE 
Consumer real estate(22)(10)(12)
Credit card and other11 11 
   Total net charge-offs$2 $120 $27 
Average loans and leases
C&I$32,010 $27,638 $18,283 
CRE12,314 8,508 4,102 
Consumer real estate10,969 9,191 6,299 
Credit card and other1,005 846 505 
   Total average loans and leases$56,298 $46,183 $29,189 
Charge-off %
C&I0.04 %0.43 %0.15 %
CRE0.01 %0.01 %0.02 %
Consumer real estateNMNMNM
Credit card and other1.05 %1.04 %2.25 %
   Total charge-off % %0.26 %0.09 %
ALLL / net charge-offs
C&I2,645 %376 %453 %
CRE13,189 %43,670 %5,213 %
Consumer real estateNMNMNM


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Credit card and other185 %299 %117 %
   Total ALLL / net charge-offs30,641 %808 %739 %
NM - not meaningful
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans on which FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages).
Reflecting an overall improvement in asset quality, total NPAs (including NPL HFS) decreased $121 million to $285 million as of December 31, 2021, and the ratio of nonperforming loans to total loans decreased 16 basis points to 0.50%. The decrease in nonperforming loans was driven primarily by the CRE and consumer real estate portfolios.
Certain nonperforming loans in both the commercial and consumer portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because the estimated loss has been recognized through a partial charge-off, typically an ALLL is not recorded.

Table 7.13

NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (a) (b)
December 31
(Dollars in millions)202120202019
Nonperforming loans and leases
C&I$125 $144 $74 
CRE9 58 
Consumer real estate138 182 86 
Credit card and other3 — 
  Total nonperforming loans and leases (c) (d) $275 $386 $162 
Nonperforming loans held-for-sale (d)$7 $$
Foreclosed real estate and other assets (e)3 15 16 
Total nonperforming assets (d) (f) $285 $406 $182 
Nonperforming loans and leases to total loans and leases
C&I0.40 %0.43 %0.37 %
CRE0.08 %0.48 %0.04 %
Consumer real estate1.29 %1.56 %1.39 %
Credit card and other0.31 %0.18 %0.07 %
   Total NPL %0.50 %0.66 %0.52 %
ALLL / NPLs
C&I268 %315 %166 %
CRE1,671 %415 %1,973 %
Consumer real estate118 %133 %33 %
Credit card and other699 %1313 %3892 %
   Total ALLL / NPLs244 %249 %124 %
(a)Balances for 2019 do not include PCI loans even though the client may be contractually past due. PCI loans were recorded at fair value upon acquisition and accreted interest income over the remaining life of the loan. PCI loans were transitioned to PCD status upon adoption of CECL.


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(b)Unless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
(c)Under the original terms of the loans, estimated interest income would have been approximately $19 million, $18 million, and $11 million during 2021, 2020 and 2019, respectively.
(d)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(e)Foreclosed real estate from GNMA loans totaled $1 million, $2 million, and $2 million at December 31, 2021, 2020, and 2019, respectively.
(f)Balances do not include government-insured foreclosed real estate. Balances for 2019 also do not include PCI loans. PCI loans were transitioned to PCD status upon adoption of CECL.

The following table provides nonperforming assets by business segment:
Table 7.14
NONPERFORMING ASSETS BY SEGMENT
December 31
(Dollars in millions)202120202019
Nonperforming loans and leases (a) (b)
Regional Banking$163 $216 $45 
Specialty Banking 78 117 68 
Corporate 34 53 49 
   Consolidated$275 $386 $162 
Foreclosed real estate (c)
Regional Banking$2 $12 $12 
Specialty Banking  
Corporate 1 
   Consolidated$3 $15 $16 
Nonperforming Assets (a) (b) (c)
Regional Banking$165 $228 $57 
Specialty Banking 78 118 69 
Corporate 35 55 52 
   Consolidated$278 $401 $178 
Nonperforming loans and leases to total loans and leases
Regional Banking0.43 %0.54 %0.27 %
Specialty Banking 0.48 0.68 0.51 
Corporate 5.39 5.70 5.22 
   Consolidated0.50 %0.66 %0.52 %
NPA % (d)
Regional Banking0.44 %0.57 %0.34 %
Specialty Banking 0.48 0.68 0.52 
Corporate 5.51 5.87 5.48 
   Consolidated0.51 %0.69 %0.57 %
(a)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b)Excludes loans classified as held for sale.
(c)Excludes foreclosed real estate and receivables related to government-insured mortgages of $1 million, $5 million, and $10 million as of December 31, 2021, 2020, and 2019, respectively.
(d)Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.



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Lending Assistance for Borrowers
In addition to PPP loans, other customer support initiatives in response to the COVID-19 pandemic include incremental lending assistance for borrowers through delayed payment programs and fee waivers.
The following table provides the UPB of loans related to deferrals granted to FHN’s customers as of December 31, 2021 and December 31, 2020.
Table 7.15
CUSTOMER DEFERRALS
(Dollars in millions)December 31, 2021December 31, 2020
Commercial:
C&I$9 $104 
CRE26 194 
Total Commercial$35 $298 
Consumer:
HELOC$5 $14 
Real estate installment loans44 202 
Credit card and other 
Total Consumer$49 $220 
Total$84 $518 
Commercial deferrals as of December 31, 2021 were comprised primarily of private client (59% or $21 million) and general commercial (40% or $14 million).
To the extent that loans were past due as of December 31, 2021 or December 31, 2020 and had been granted a
deferral, they were excluded from loans past due 30 to 89 days and loans past due 90 days or more in the table and discussion below.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans 90 days or more past due and still accruing were $40 million as of December 31, 2021, an increase of $23 million compared to December 31, 2020, primarily from consumer real estate loans. Loans 30 to 89 days past due increased $8
million from year-end 2020 to $108 million as of December 31, 2021, as a higher level of C&I loans past due were offset by lower consumer real estate loans past due less than 90 days, most notably in the CRE and consumer real estate portfolios.



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Table 7.16
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES 
December 31
(Dollars in millions)202120202019
Accruing loans and leases 30+ days past due
C&I$58 $15 $
CRE13 23 
Consumer real estate 70 69 43 
Credit card and other7 10 
   Total accruing loans and leases 30+ days past due $148 $117 $58 
Accruing loans and leases 30+ days past due %
C&I0.19 %0.05 %0.05 %
CRE0.11 0.19 0.02 
Consumer real estate0.65 0.58 0.70 
Credit card and other0.76 0.87 0.93 
   Total accruing loans and leases 30+ days past due %0.27 %0.20 %0.19 %
Accruing loans and leases 90+ days past due (a) (b) (c)
C&I$5 $— $
CRE — — 
Consumer real estate33 16 18 
Credit card and other2 
Total accruing loans and leases 90+ days past due $40 $17 $22 
Loans held for sale
30 to 89 days past due (b)$7 $$
30 to 89 days past due - guaranteed portion (b) (d)2 
90+ days past due (b)24 12 
90+ days past due - guaranteed portion (b) (d)12 10 
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.

Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the Federal banking regulators for loans classified as substandard. At
year-end 2021, potential problem assets in the loan portfolio decreased $121 million from December 31, 2020 to $597 million on December 31, 2021. The decrease was attributable to an overall improvement in asset quality. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequacy of the allowance for loan and lease losses.
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated
separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a TDR.
For loan modifications that were made during 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised


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Interagency Guidance, FHN has excluded these modifications from consideration as a TDR, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies and Note 4 – Loans and Leases for further discussion regarding TDRs and loan modifications.
Commercial Loan Modifications
As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department (LRRD) is responsible for managing most commercial relationships with borrowers whose financial condition has deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation. LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally 6-12 months) as an element of commercial loan workouts, which might include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
The individual impairment assessments completed on commercial loans in accordance with the Accounting Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as TDRs as well as loans that may have been modified yet not classified as TDRs by management. For example, a modification of loan terms that management would generally not consider to be a TDR could be a temporary extension of maturity to allow a borrower to complete an asset sale whereby the proceeds of such transaction are to be paid to satisfy the outstanding debt. Additionally, a modification that extends the term of a loan but does not involve reduction of principal or accrued interest, in which the interest rate is adjusted to reflect current market rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual impairment is identified, management will either hold specific reserves on the amount of impairment, or, if the loan is collateral dependent, write down the carrying amount of the asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but does generally structure modified consumer loans using the parameters of the former Home Affordable Modification Program. Generally, a majority of loans
modified under any such proprietary programs are classified as TDRs.
Within the HELOC and real estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2% per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, clients are granted a rate reduction to 0% and term extensions for up to 5 years to pay off the remaining balance.
Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to the impairment guidance in ASC 310-10-35, which requires individual evaluation of the debt for impairment. However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous TDRs and use historical statistics, such as aggregated charge-off amounts and average amounts recovered, along with a composite effective interest rate to measure impairment when such impaired loans have risk characteristics in common.
FHN had $206 million and $307 million portfolio loans classified as held-for-investment TDRs on December 31, 2021 and 2020, respectively, a decrease of $101 million between periods. For these TDRs, including specific reserves, FHN had an allowance for loan and lease losses of $12 million and $15 million, or 6% and 5% of TDR balances, as of December 31, 2021 and 2020, respectively. Additionally, FHN had $35 million and $42 million of HFS loans classified as TDRs at year-end 2021 and 2020, respectively.



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The following table provides a summary of TDRs for the periods ended December 31, 2021 and 2020.
Table 7.17
TROUBLED DEBT RESTRUCTURINGS 
(Dollars in millions)
December 31, 2021

December 31, 2020
Held for investment:
Commercial loans:
Current$53 $82 
Delinquent — 
Non-accrual35 84 
         Total commercial loans88 166 
Consumer real estate:
Current$60 $77 
Delinquent4 
Non-accrual (a)53 61 
         Total consumer real estate117 140 
Credit card and other:
Current1 
Delinquent — 
Non-accrual — 
         Total credit card and other1 
Total held for investment$206 $307 
Held for sale:
Current$27 $36 
Delinquent7 
Non-accrual1 
Total held for sale35 42 
Total troubled debt restructurings$241 $349 
(a)Balances as of December 31, 2021 and 2020, include $12 million and $11 million, respectively, of discharged bankruptcies.
Deposits
Total deposits were $74.9 billion as of December 31, 2021, up $4.9 billion from $70.0 billion as of December 31, 2020, driven by a $5.7 billion increase in non-interest bearing deposits as a result of elevated liquidity tied to government stimulus associated with the COVID-19 pandemic. Growth in noninterest-bearing deposits was partially offset by a $1.6 billion decline in time deposits.
The following tables summarize FHN's total deposits and estimated uninsured total deposits for 2021, 2020, and 2019, as well as the maturities of FHN's uninsured time deposits as of December 31, 2021. See Table 7.2 - Average Balances, Net Interest Income and Yields/Rates in this Report for information on average deposits including average rates paid.



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Table 7.18
DEPOSITS
(Dollars in millions)2021Percent of Total2021 Growth Rate2020Percent of Total2020 Growth Rate2019Percent of Total2019 Growth Rate
Savings$26,457 35 %(3)%$27,324 39 %134 %$11,665 36 %(3)%
Time deposits3,500 5 (31)5,070 40 3,618 11 (12)
Other interest-bearing deposits17,055 23 11 15,415 22 77 8,718 27 
Total interest-bearing deposits47,012 63 (2)47,809 68 99 24,001 74 (2)
Noninterest-bearing deposits27,883 37 26 22,173 32 163 8,429 26 
Total deposits$74,895 100 %7 %$69,982 100 %116 %$32,430 100 %(1)%

Table 7.19
UNINSURED DEPOSITS
For the Year Ended December 31,
(Dollars in millions)202120202019
Uninsured deposits$39,756 $33,057 $12,176 

Table 7.20
UNINSURED TIME DEPOSITS BY MATURITY
(Dollars in millions)December 31, 2021
Portion of U.S. time deposits in excess of insurance limit$515 
Time deposits otherwise uninsured with a maturity of:
3 months or less212 
Over 3 months through 6 months117 
Over 6 months through 12 months124 
Over 12 months62 

Short-Term Borrowings
Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, trading liabilities, and other short-term borrowings. Total short-term borrowings were $2.6 billion as of December 31, 2021 and December 31, 2020.
Short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Trading liabilities fluctuate based on various factors,
including levels of trading securities and hedging strategies. Federal funds purchased fluctuates depending on the amount of excess funding of FHN's correspondent bank customers. Balances of securities sold under agreements to repurchase fluctuate based on cost attractiveness relative to FHLB borrowing levels and the ability to pledge securities toward such transactions. See Note 10 - Short-Term Borrowings for additional information.
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Total term borrowings were $1.6 billion on December 31, 2021, an $80 million decrease from $1.7 billion on December 31, 2020.
During 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debt underlying multiple issuances of trust preferred securities. The redemption resulted in a loss on debt extinguishment of $26 million. See Note 11 - Term Borrowings for additional information.


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Capital
Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets.
Total equity increased $187 million to $8.5 billion on December 31, 2021 from $8.3 billion on December 31, 2020. Significant changes included net income of $1.0 billion and the issuance of $145 million in Series F preferred stock, which were offset by $416 million in
common share repurchases, $364 million in common and preferred dividends, a $148 decrease in AOCI, and $100 million from the call of Series A preferred stock.
The following tables provide a reconciliation of shareholders’ equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 7.21a
REGULATORY CAPITAL DATA
(Dollars in millions)December 31, 2021December 31, 2020
FHN shareholders’ equity$8,199 $8,012 
Modified CECL transitional amount (a)114 191 
FHN non-cumulative perpetual preferred(520)(470)
Common equity tier 1 before regulatory adjustments $7,793 $7,733 
Regulatory adjustments:
Disallowed goodwill and other intangibles(1,711)(1,757)
Net unrealized (gains) losses on securities available for sale36 (108)
Net unrealized (gains) losses on pension and other postretirement plans255 260 
Net unrealized (gains) losses on cash flow hedges(3)(12)
Disallowed deferred tax assets(2)(5)
Other deductions from common equity tier 1(1)(1)
Common equity tier 1$6,367 $6,110 
FHN non-cumulative perpetual preferred (b) 426 377 
Qualifying noncontrolling interest—First Horizon Bank preferred stock295 295 
Tier 1 capital$7,088 $6,782 
Tier 2 capital830 1,153 
Total regulatory capital$7,918 $7,935 
Risk-Weighted Assets
First Horizon Corporation$64,183 $63,140 
First Horizon Bank63,601 62,508 
Average Assets for Leverage
First Horizon Corporation87,683 82,347 
First Horizon Bank86,953 81,709 



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Table 7.21b
REGULATORY RATIOS & AMOUNTS
 December 31, 2021December 31, 2020
(Dollars in millions)RatioAmountRatioAmount
Common Equity Tier 1
First Horizon Corporation9.92 %$6,367 9.68 %$6,110 
First Horizon Bank10.75 6,838 10.46 6,537 
Tier 1
First Horizon Corporation11.04 7,088 10.74 6,782 
First Horizon Bank11.22 7,133 10.93 6,832 
Total
First Horizon Corporation12.34 7,918 12.57 7,935 
First Horizon Bank12.41 7,893 12.52 7,827 
Tier 1 Leverage
First Horizon Corporation8.08 7,088 8.24 6,782 
First Horizon Bank8.20 7,133 8.36 6,832 
Other Capital Ratios
Total period-end equity to period-end assets 9.53 9.86 
Tangible common equity to tangible assets (c)6.73 6.89 
Adjusted tangible common equity to risk weighted assets (c)9.20 8.82 
(a)    The modified CECL transitional amount is calculated as defined in the final rule issued by the banking regulators on August 26, 2020 and includes the full amount of the impact to retained earnings from the initial adoption of CECL plus 25% of the change in the adjusted allowance for credit losses since FHN’s initial adoption of CECL through December 31, 2021.
(b)    The $94 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital because the earliest redemption date is less than five years from the issuance date.
(c)    Tangible common equity to tangible assets and adjusted tangible common equity to risk-weighted assets are non-GAAP measures and are reconciled to total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 7.30.

Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.50%, 8.00%, 10.00%, and 5.00%, respectively. Furthermore, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses. As of December 31, 2021, both FHN and First Horizon Bank had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. Capital ratios for both FHN and First Horizon Bank as of
December 31, 2021 are calculated under the final rule issued by the banking regulators in late August 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based regulatory capital ratios increased in 2021 relative to 2020 primarily from the net positive impact of net income less dividends and share repurchases. FHN's Tier 1 Capital ratio further benefited from the issuance in 2021 of its Series F preferred stock, partially offset by the retirement of its Series A preferred stock. FHN's Total Capital ratio as of December 31, 2021 was unfavorably impacted by the retirement of legacy IBKC trust preferred securities, which qualified as Tier 2 capital. The Tier 1 Leverage ratio for both FHN and First Horizon Bank decreased from December 31, 2020 as a result of an increase in average assets.
During 2022, capital ratios are expected to remain above well-capitalized standards plus the required capital conservation buffer.
Stress Testing
The Economic Growth, Regulatory Relief, and Consumer Protection Act, along with an interagency regulatory statement effectively exempted both FHN and First
Horizon Bank from Dodd-Frank Act stress testing requirements starting in 2018. 


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For 2021, FHN and First Horizon Bank completed a company run stress test using the Comprehensive Capital Analysis and Review (CCAR) Resubmission scenarios published in February 2021. Results of these tests indicate that both FHN and First Horizon Bank would be able to maintain capital well in excess of Basel III Adequately Capitalized standards under the hypothetical severe global recession of the 2021 CCAR Resubmission Severely Adverse scenario. A summary of those results was posted in the “News & Events-Stress Testing Results” section on FHN’s investor relations website on June 28, 2021. Neither FHN’s stress test posting, nor any other material found on
FHN’s website generally, is part of this report or incorporated herein.
FHN anticipates that it will continue performing an annual enterprise-wide stress test as part of its capital and risk management process. Results of this test will be presented to executive management and the Board.
The disclosures in this “Stress Testing” section include forward-looking statements. Please refer to “Forward-Looking Statements” for additional information concerning the characteristics and limitations of statements of that type.
Common Stock Purchase Programs
Pursuant to Board authority, FHN may repurchase shares of its common stock from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders, subject to legal and regulatory restrictions. FHN’s Board has not authorized a preferred stock purchase program.
General Purchase Program
On January 23, 2018, FHN announced a $250 million share purchase authority with an expiration date of January 31, 2020. On January 29, 2019, FHN announced a $250 million increase in that authority (to $500 million total) along with an extension of the expiration date to January 31, 2021. The 2018 program has been terminated, as described in the next paragraph.
On January 27, 2021, FHN announced that its Board approved a new $500 million common share purchase program that was to expire on January 31, 2023, replacing
the 2018 program, which was terminated. On October 26, 2021, FHN announced that the 2021 program had been increased by $500 million and extended to October 31, 2023. Like the 2018 program, the 2021 program is not tied to any compensation plan. Purchases may be made in the open market or through privately negotiated transactions, including under Rule 10b5-1 plans as well as accelerated share repurchase and other structured transactions. The timing and exact amount of common share repurchases will be subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory considerations.
As of December 31, 2021, $401 million in purchases had been made life-to-date under this authority at an average price per share of $16.60, or $16.58 excluding commissions.
Table 7.22a
COMMON STOCK PURCHASES—GENERAL PROGRAM
(Dollar values and volume in thousands, except per share data)Total number
of shares
purchased
Average price
paid per share (a)
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate dollar value that may yet be purchased under the programs
2021
October 1 to October 311,120 $17.00 1,120 $723,523 
November 1 to November 304,475 $17.19 4,475 $646,603 
December 1 to December 312,925 $16.40 2,925 $598,646 
Total8,520 $16.89 8,520 
(a)    Represents total costs including commissions paid

Compensation Plans Purchase Program
A consolidated compensation plan share purchase program was announced on August 6, 2004. This program consolidated into a single share purchase program all of the previously authorized compensation plan share programs, as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase
authority had expired. The total amount authorized under this consolidated compensation plan share purchase program is 29.6 million shares calculated before adjusting for stock dividends distributed through January 1, 2011. The authorization has been reduced for that portion which relates to compensation plans for which no options remain outstanding. The shares may be purchased over the option exercise period of the various compensation plans on or before December 31, 2023. Purchases may be


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made in the open market or through privately negotiated transactions and are subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions, and regulatory considerations. As of December 31, 2021, the
maximum number of shares that may be purchased under the program was 23 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2022.
Table 7.22b
COMMON STOCK PURCHASES—COMPENSATION PLANS PROGRAM
(Volume in thousands, except per share data)Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum number
of shares that may
yet be purchased
under the programs
2021
October 1 to October 31*$16.73 *23,150 
November 1 to November 3017.30 23,148 
December 1 to December 3116.26 23,143 
Total$16.59 
* Amount is less than 500 shares
Risk Management
FHN derives revenue from providing services and, in many cases, assuming and managing risk for profit which exposes FHN to business strategy and reputational, liquidity, market, capital adequacy, operational, compliance, legal, and credit risks that require ongoing oversight and management. FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. Through an enterprise-wide risk governance structure and a statement of risk appetite approved by the Board, management continually evaluates the balance of risk/return and earnings volatility with shareholder value.
FHN’s enterprise-wide risk governance structure begins with the Board. The Board, working with the Executive & Risk Committee of the Board, establishes FHN’s risk appetite by approving policies and limits that provide standards for the nature and the level of risk FHN is willing to assume. The Board regularly receives reports on management’s performance against FHN’s risk appetite primarily through the Board’s Executive & Risk and Audit Committees.
To further support the risk governance provided by the Board, FHN has established accountabilities, control processes, procedures, and a management governance structure designed to align risk management with risk-taking throughout FHN. The control procedures are aligned with FHN’s four components of risk governance: (1) Specific Risk Committees; (2) the Risk Management Organization; (3) Business Unit Risk Management; and (4) Independent Assurance Functions.

1.Specific Risk Committees: The Board has delegated authority to the Chief Executive Officer to manage Business Strategy and Reputation Risk, and the general business affairs of FHN under the Board’s oversight. The CEO utilizes the executive management team and the Management Risk Committee to carry out these duties and to analyze existing and emerging strategic and reputation risks and determines the appropriate course of action. The Management Risk Committee is comprised of the CEO and certain officers designated by the CEO. The Management Risk Committee is supported by a set of specific risk committees focused on unique risk types (e.g. liquidity, credit, operational, etc.). These risk committees provide a mechanism that assembles the necessary expertise and perspectives of the management team to discuss emerging risk issues, monitor FHN’s risk-taking activities, and evaluate specific transactions and exposures. These committees also monitor the direction and trend of risks relative to business strategies and market conditions and direct management to respond to risk issues.
2.The Risk Management Organization: FHN’s risk management organization, led by the Chief Risk Officer and Chief Credit Officer, provides objective oversight of risk-taking activities. The risk management organization translates FHN’s overall risk appetite into approved limits and formal policies and is supported by corporate staff functions, including the Corporate Secretary, Legal, Finance, Human Resources, and Technology. Risk management also works with business units and functional experts to establish appropriate operating standards and monitor business practices in relation to those standards. Additionally, risk management proactively works with business units


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and senior management to focus management on key risks in FHN and emerging trends that may change FHN’s risk profile. The Chief Risk Officer has overall responsibility and accountability for enterprise risk management and aggregate risk reporting.
3.Business Unit Risk Management: FHN’s business units are responsible for identifying, acknowledging, quantifying, mitigating, and managing all risks arising within their respective units. They determine and execute their business strategies, which puts them closest to the changing nature of risks and they are best able to take the needed actions to manage and mitigate those risks. The business units are supported by the risk management organization that helps identify and consider risks when making business decisions. Management processes, structure, and policies are designed to help ensure compliance with laws and regulations as well as provide organizational clarity for authority, decision-making, and accountability. The risk governance structure supports and promotes the escalation of material items to executive management and the Board.
4.Independent Assurance Functions: Internal Audit, Credit Assurance Services, Compliance Testing, and Model Validation provide an independent and objective assessment of the design and execution of FHN’s internal control system, including management processes, risk governance, and policies and procedures. These groups’ activities are designed to provide reasonable assurance that risks are appropriately identified and communicated; resources are safeguarded; significant financial, managerial, and operating information is complete, accurate, and reliable; and employee actions are in compliance with FHN’s policies and applicable laws and regulations. Internal Audit and CAS report to the Chief Audit Executive, who is appointed by and reports to the Audit Committee of the Board. Internal Audit reports quarterly to the Audit Committee of the Board, while CAS reports quarterly to the Executive & Risk Committee of the Board. Compliance Testing and Model Validation report to the Chief Risk Officer and report annually to the Audit Committee of the Board.

Market Risk Management
Market risk is the risk that changes in market conditions will adversely impact the value of assets or liabilities, or otherwise negatively impact FHN’s earnings. Market risk is inherent in the financial instruments associated with FHN’s operations, primarily trading activities within FHN Financial, but also through non-trading activities which are primarily affected by interest rate risk that is managed by the ALCO within FHN.
FHN is exposed to market risk related to the trading securities inventory and loans held for sale maintained by FHN Financial in connection with its fixed income distribution activities. Various types of securities inventory positions are procured for distribution to clients by the sales staff. When these securities settle on a delayed basis, they are considered forward contracts. Refer to the "Determination of Fair Value - Trading securities and trading liabilities" section of Note 24 - Fair Value of Assets and Liabilities, which section is incorporated into this MD&A by this reference.
FHN’s market risk appetite is approved by the Executive & Risk Committee of the Board of Directors and executed through management policies and procedures of ALCO and the FHN Financial Risk Committee. These policies contain various market risk limits including, for example,
VaR limits for the trading securities inventory, and individual position limits and sector limits for products with credit risk, among others. Risk measures are computed and reviewed on a daily basis to ensure compliance with market risk management policies.
Value-at-Risk and Stress Testing
VaR is a statistical risk measure used to estimate the potential loss in value from adverse market movements over an assumed fixed holding period within a stated confidence level. FHN employs a model to compute daily VaR measures for its trading securities inventory. FHN computes VaR using historical simulation with a 1-year lookback period at a 99% confidence level with 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR measure. The SVaR computation uses the same model but with model inputs reflecting historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate for our trading securities portfolio.

A summary of FHN's VaR and SVaR measures for 1-day and 10-day time horizons is presented in the following table:


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Table 7.23
VaR & SVaR MEASURES
 Year Ended December 31, 2021As of
December 31, 2021
(Dollars in millions)MeanHighLow
1-day
VaR$1 $4 $1 $2 
SVaR4 7 2 5 
10-day
VaR5 21 1 5 
SVaR18 27 11 22 
 Year Ended December 31, 2020As of
December 31, 2020
(Dollars in millions)MeanHighLow
1-day
VaR$$$$
SVaR18 
10-day
VaR13 25 10 
SVaR18 43 10 
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks are as follows:
Table 7.24
SCHEDULE OF RISKS INCLUDED IN VaR
 As of December 31, 2021As of December 31, 2020
(Dollars in millions)1-day10-day1-day10-day
Interest rate risk$1 $1 $$
Credit spread risk1 1 

The potential risk of loss reflected by FHN’s VaR measures assumes the trading securities inventory is static. Because FHN Financial procures fixed income securities for purposes of distribution to clients, its trading securities inventory turns over regularly. Additionally, FHNF traders actively manage the trading securities inventory continuously throughout each trading day. Accordingly, FHNF’s trading securities inventory is highly dynamic, rather than static. As a result, it would be rare for FHNF to incur a negative revenue day in its fixed income activities at the levels indicated by its VaR measures.
In addition to being used in FHN’s daily market risk management process, the VaR and SVaR measures are also used by FHN in computing its regulatory market risk capital requirements in accordance with the Market Risk Capital rules. For additional information regarding FHN's capital adequacy refer to the Capital section of this MD&A.
FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various
assumed market scenarios. Key assumed stresses used in those tests are:
Down 25 bps - assumes an instantaneous downward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Up 25 bps - assumes an instantaneous upward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Curve flattening - assumes an instantaneous flattening of the interest rate yield curve through an increase in short-term rates and a decrease in long-term rates. The 2-year point on the Treasury yield curve is assumed to increase 15 basis points and the 10-year point on the Treasury yield curve is assumed to decrease 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Curve steepening - assumes an instantaneous steepening of the interest rate yield curve through a decrease in short-term rates and an increase in long-


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term rates. The 2-year point on the Treasury yield curve is assumed to decrease 15 basis points and the 10-year point on the Treasury yield curve is assumed to increase 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Credit spread widening - assumes an instantaneous increase in credit spreads (the difference between yields on Treasury securities and non-Treasury securities) of 25 basis points.
Model Validation
Trading risk management personnel within FHN Financial have primary responsibility for model risk management
with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review by FHN’s Model Validation Group, an independent assurance group charged with oversight responsibility for FHN’s model risk management.

Interest Rate Risk Management
Interest rate risk is the risk to earnings or capital arising from movement in interest rates. ALCO is responsible for overseeing the management of existing and emerging interest rate risk for the company within risk tolerances established by the Board. FHN primarily manages interest rate risk by structuring the balance sheet to maintain a desired level of associated earnings and to protect the economic value of FHN’s capital.
Net interest income and the value of equity are affected by changes in the level of market interest rates because of the differing repricing characteristics of assets and liabilities, the exercise of prepayment options held by loan clients, the early withdrawal options held by deposit clients, and changes in the basis between and changing shapes of the various yield curves used to price assets and liabilities. To isolate the repricing, basis, option, and yield curve components of overall interest rate risk, FHN employs Gap, Earnings at Risk, and Economic Value of Equity analyses generated by a balance sheet simulation model.
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this Report.
Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and
deposit pricing. In addition, assumptions are made about the magnitude of asset prepayments and earlier than anticipated deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest rate risk. While management believes the assumptions used and scenarios selected in its simulations are reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given change in interest rates.
Based on a static balance sheet as of December 31, 2021, NII exposures over the next 12 months assuming rate shocks of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points are estimated to have favorable variances as shown in the table below.
Table 7.25
INTEREST RATE SENSITIVITY
Shifts in Interest Rates
(in bps)
% Change in Projected Net Interest Income
+253.7%
+507.6%
+10016.4%
+20029.5%
A steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of 0.8%. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of 1.1%. Rate shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of 1.9% and 2.7%, assuming the absence of negative rates. These hypothetical scenarios are used to create a risk measurement framework, and do not necessarily represent management’s current view of future interest rates or market developments.
FHN’s net interest income has been impacted by the disruption from the COVID-19 pandemic and its variants as well as the low-rate environment. The impact of


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government stimulus programs and other developments have also influenced net interest income results, although the impacts from these programs have abated, and interest rates are expected to increase in the future. FHN continues to monitor current economic trends and potential exposures closely.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also affect the fair value of FHN's trading inventory that is reflected in noninterest income.
Generally, low or declining interest rates with a positively sloped yield curve tend to increase income through higher demand for fixed income products. Additionally, the fair value of FHN's trading inventory can fluctuate as a result of differences between current interest rates and the interest rates of fixed income securities in the trading inventory.
Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and
credit-related agreements) to manage the risk of loss arising from adverse changes in the fair value of certain financial instruments generally caused by changes in interest rates, including FHN's securities inventory, certain term borrowings, and certain loans. Additionally, FHN may enter into derivative contracts in order to meet clients' needs. However, such derivative contracts are typically offset with a derivative contract entered into with an upstream counterparty in order to mitigate risk associated with changes in interest rates.
The simulation models and related hedging strategies discussed above exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes in interest rates or expectations of changes. See Note 22 - Derivatives for additional discussion of these instruments.

Capital Risk Management & Adequacy
The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards and Board policy, and to assure ready access to the capital markets. The Capital & Stress Testing Committee, chaired by the Corporate Treasurer, reports to ALCO and is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. This committee reviews sources and uses of capital, key capital
ratios, segment economic capital allocation methodologies, coordinates the annual enterprise-wide stress testing process, and other factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital. The Capital & Stress Testing Committee also recommends capital management policies, which are submitted for approval to ALCO and the Executive & Risk Committee and the Board as necessary.
Operational Risk Management
Operational risk is the risk of loss from inadequate or failed internal processes, people, or systems or from external events including data or network security breaches of FHN or of third parties affecting FHN or its clients. This risk is inherent in all businesses. Operational risk is divided into the following risk areas, which have been established at the corporate level to address these risks across the entire organization:
Business Resilience
Records Management
Compliance/Legal (including Bank Secrecy Act)
Program Governance
Fiduciary
Security/Fraud
Financial (including disclosure controls and procedures)
Information Technology (including cybersecurity)
Model
Vendor
Insurance
Management, measurement, and reporting of operational risk are overseen by the Operational Risk, Fiduciary, Financial Governance, FHN Financial Risk, and Strategic Investment Board Committees. Key representatives from the business segments, operating units, and supporting units are represented on these committees as appropriate. These governance committees manage the individual operational risk types across FHN by setting standards, monitoring activity, initiating actions, and reporting exposures and results. Key Committee activities and decisions are reported to the appropriate governance committee or included in the Enterprise Risk Report, a quarterly analysis of risk within the organization that is provided to the Executive and Risk Committee. Emphasis is dedicated to refinement of processes and tools to aid in measuring and managing material operational risks and providing for a culture of awareness and accountability.


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Compliance Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation as a result of failure to comply with laws, regulations, rules, self-regulatory organization standards, and codes of conduct applicable to FHN’s activities. Management, measurement, and reporting of compliance risk are overseen by the Operational Risk Committee and other key Corporate Governance Committees. Key executives
from the business segments, legal, compliance, risk management, and service functions are represented on the Committees. Summary reports of Committee activities and decisions are provided to the appropriate governance committees. Reports include the status of regulatory activities, internal compliance program initiatives, compliance testing results and evaluation of emerging compliance risk areas.
Credit Risk Management
Credit risk is the risk of loss due to adverse changes in a borrower’s or counterparty’s ability to meet its financial obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding, and asset management activities although lending activities have the most exposure to credit risk. The nature and amount of credit risk depends on the types of transactions, the structure of those transactions, collateral received, the use of guarantors and the parties involved.
FHN assesses and manages credit risk through a series of policies, processes, measurement systems, and controls. The Credit Risk Management Committee is responsible for overseeing the management of existing and emerging credit risks in the company within the broad risk tolerances established by the Board. The CRMC reports through the Management Risk Committee. The Credit Risk Management function, led by the Chief Credit Officer, provides strategic and tactical credit leadership by maintaining policies, overseeing credit approval, assessing new credit products, strategies and processes, and managing portfolio composition and performance.
While the Credit Risk function oversees FHN’s credit risk management, there is significant coordination between the business lines and the Credit Risk function in order to manage FHN’s credit risk and maintain strong asset quality. The Credit Risk function recommends portfolio, industry/sector, and individual client limits to the Executive & Risk Committee of the Board for approval. Adherence to these approved limits is vigorously monitored by Credit Risk which provides recommendations to slow or cease lending to the business lines as commitments near established lending limits. Credit Risk also ensures subject matter experts are
providing oversight, support and credit approvals, particularly in the specialty lending areas where industry-specific knowledge is required. Management emphasizes general portfolio servicing such that emerging risks are able to be spotted early enough to correct potential deficiencies, prevent further credit deterioration, and mitigate credit losses.
The Credit Risk Management function assesses the asset quality trends and results, as well as lending processes, adherence to underwriting guidelines (portfolio-specific underwriting guidelines are discussed further in the Asset Quality Trends section), and utilizes this information to inform management regarding the current state of credit quality and as a factor of the estimation process for determining the allowance for credit losses. The CRMC reviews on a periodic basis various reports issued by assurance functions which provide an independent assessment of the adequacy of loan servicing, grading accuracy, and other key functions. Additionally, CRMC is presented with and discusses various portfolios, lending activity and lending-related projects.
All of the above activities are subject to independent review by FHN’s Credit Assurance Services Group. CAS reports to the Chief Audit Executive, who is appointed by and reports to the Audit Committee of the Board, and provides quarterly reports to the Executive & Risk Committee of the Board. CAS is charged with providing the Executive & Risk Committee of the Board and executive management with independent, objective, and timely assessments of FHN’s portfolio quality, credit policies, and credit risk management processes.

Liquidity Risk Management
Among other things, ALCO is responsible for liquidity management: the funding of assets with liabilities of appropriate duration, while mitigating the risk of unexpected cash needs. ALCO and the Board of Directors have adopted a Liquidity Policy of which the objective is to ensure that FHN meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity should provide FHN with the
ability to meet both expected and unexpected cash and collateral needs. Key liquidity ratios, asset liquidity levels, and the amount available from funding sources are reported to ALCO on a regular basis. FHN’s Liquidity Policy establishes liquidity limits that are deemed appropriate for FHN’s risk profile.
In accordance with the Liquidity Policy, ALCO manages FHN’s exposure to liquidity risk through a dynamic, real


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time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds availability are periodically reviewed. FHN maintains a contingency funding plan that may be executed should unexpected difficulties arise in accessing funding that affects FHN, the industry, or both. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including the available-for-sale securities portfolio, dealer and commercial customer repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing capacity at the FHLB ($14.5 billion was available at December 31, 2021), brokered deposits, loan sales, syndications, and access to the Federal Reserve Bank.
Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's client base which provides inexpensive, predictable pricing. The FDIC insures these deposits to the extent authorized by law. Generally, these limits are $250,000 per account owner for interest-bearing and noninterest-bearing accounts. The ratio of average loans, excluding loans HFS and restricted real estate loans, to average core deposits was 80% on December 31, 2021 compared to 99% on December 31, 2020.
FHN may also use unsecured short-term borrowings as a source of liquidity. Federal funds purchased from correspondent bank clients are considered to be substantially more stable than funds purchased in the national broker markets for federal funds due to the long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The remainder of FHN’s wholesale short-term borrowings consists of securities sold under agreements to repurchase transactions accounted for as secured borrowings with business clients or broker dealer counterparties.
Both FHN and First Horizon Bank have the ability to generate liquidity by issuing senior or subordinated unsecured debt, preferred equity, and common equity, subject to market conditions and compliance with applicable regulatory requirements. In May 2021, FHN issued $150 million of Series F Non-Cumulative Perpetual Preferred Stock and in July 2021 redeemed its $100 million Series A Non-Cumulative Perpetual Preferred Stock. As of December 31, 2021, FHN had outstanding $1.3 billion in senior and subordinated unsecured debt and $520 million in non-cumulative perpetual preferred stock. As of December 31, 2021, First Horizon Bank and subsidiaries had outstanding preferred shares of $295 million, which are reflected as noncontrolling interest on the Consolidated Balance Sheet.
Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. The amount paid to the parent company through First Horizon Bank common dividends is managed as part of FHN’s overall cash management process, subject to applicable regulatory restrictions. Certain regulatory restrictions exist regarding the ability of First Horizon Bank to transfer funds to FHN in the form of cash, common dividends, loans, or advances. At any given time, the pertinent portions of those regulatory restrictions allow First Horizon Bank to declare preferred or common dividends without prior regulatory approval in an aggregate amount equal to First Horizon Bank’s retained net income for the two most recently completed years plus the current year-to-date period. For any period, First Horizon Bank’s "retained net income" generally is equal to First Horizon Bank’s regulatory net income reduced by the preferred and common dividends declared by First Horizon Bank. Applying the dividend restrictions imposed under applicable federal and state rules as outlined above, the Bank’s total amount available for dividends was $1.1 billion as of January 1, 2022. Consequently, on that date the Bank could pay common dividends up to that amount to its sole common shareholder, FHN, or to its preferred shareholders without prior regulatory approval. Additionally, a capital conservation buffer must be maintained (as described in the Capital section of this Report) to avoid restrictions on dividends.
First Horizon Bank declared and paid common dividends to the parent company in the amount of $770 million in 2021 and $180 million in 2020. In January 2022, First Horizon Bank declared and paid a common dividend to the parent company in the amount of $180 million. First Horizon Bank paid preferred dividends in each quarter of 2021 and 2020 and declared preferred dividends in the first quarter of 2022 which are payable in April 2022.
Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board. These factors include FHN’s current and prospective capital, liquidity, and other needs, as well as applicable regulatory restrictions (including capital conservation buffer requirements) and availability of funds to FHN through a dividend from First Horizon Bank. Additionally, banking regulators generally require insured banks and bank holding companies to pay cash dividends only out of current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of dividends will be affected by current operating results.
FHN paid a cash dividend of $0.15 per common share on January 3, 2022. FHN paid cash dividends of $1,625 per Series E preferred share and $1,175 per Series F preferred


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share on January 10, 2022 and $331.25 per Series B preferred share and $165 per Series C preferred share on February 1, 2022. In addition, in January 2022, the Board approved cash dividends per share in the following amounts:
Table 7.26

CASH DIVIDENDS APPROVED BUT NOT PAID
Dividend/ShareRecord DatePayment Date
Common Stock$0.15 3/11/20224/1/2022
Preferred Stock
Series C$165.00 4/14/20225/2/2022
Series D$305.00 4/14/20225/2/2022
Series E$1,625.00 3/25/20224/11/2022
Series F$1,175.00 3/25/20224/11/2022
Off-Balance Sheet Arrangements
In the normal course of business, FHN is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part
in the consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments. FHN enters into commitments to extend credit to borrowers, including loan commitments, lines of credit, standby letters of credit, and commercial letters of credit. Many of the commitments are expected to expire unused or be only partially used; therefore, the total amount of commitments does not necessarily represent future cash requirements and are not included in the table below. See Note 17 - Contingencies and Other Disclosures for more information.
Contractual Obligations
The following table sets forth contractual obligations representing required and potential cash outflows as of December 31, 2021. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.


Table 7.27
CONTRACTUAL OBLIGATIONS
as of December 31, 2021
Payments due by period (a)
Less than   1 year -     3 years -After 5
(Dollars in millions)1 year< 3 years< 5 yearsyearsTotal
Contractual obligations:
Time deposit maturities (b) (c)$3,006 $344 $122 $28 $3,500 
Term borrowings (b) (d)— 456 350 807 1,613 
Annual rental commitments under noncancelable leases (b) (e)49 85 76 238 448 
Purchase obligations160 145 56 13 374 
Total contractual obligations$3,215 $1,030 $604 $1,086 $5,935 
(a)Excludes a $92 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated.
(b)Amounts do not include interest.
(c)See Note 9 - Deposits for further details.
(d)See Note 11 - Term Borrowings for further details.
(e)See Note 6 - Premises, Equipment and Leases for further details.
Credit Ratings
FHN is currently able to fund a majority of the balance sheet through core deposits, which are generally not as sensitive to FHN’s credit ratings as other types of funding. However, maintaining adequate credit ratings on debt issues and preferred stock is critical to liquidity should FHN need to access funding from other sources, including from long-term debt issuances and certain brokered deposits, at an attractive rate. The availability and cost of funds other than core deposits is also dependent upon
marketplace perceptions of the financial soundness of FHN, which include such factors as capital levels, asset quality, and reputation. The availability of core deposit funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources. FHN’s credit ratings are also referenced in various respects in


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agreements with certain derivative counterparties as discussed in Note 22 - Derivatives.
The following table provides FHN’s most recent credit ratings:

Table 7.28
CREDIT RATINGS
Moody's (a)Fitch (b)
First Horizon Corporation
Overall credit rating: Long-term/Short-term/OutlookBaa3/--/StableBBB/F2/Positive
Long-term senior debtBaa3BBB
Subordinated debt (c)Baa3BBB-
Junior subordinated debt (c)Ba1BB-
Preferred stockBa2BB-
First Horizon Bank
Overall credit rating: Long-term/Short-term/OutlookBaa3/P-2/StableBBB/F2/Positive
Long-term/short-term depositsA3/P-2BBB+/F2
Long-term/short-term senior debt (c)Baa3/P-2BBB/F2
Subordinated debt Baa3BBB-
Preferred stockBa2BB-
FT Real Estate Securities Company, Inc.
Preferred stockBa1
A rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time and should be evaluated independently of any other rating.
(a)    Last change in ratings was on May 14, 2015; ratings/outlook affirmed on November 5, 2019.
(b)    Last change in ratings was on May 6, 2020; ratings affirmed and outlook revised to Positive on May 18, 2021.
(c)    Ratings are preliminary/implied.

Repurchase Obligations
Prior to September 2008, legacy First Horizon originated loans through its pre-2009 mortgage business, primarily first lien home loans, with the intention of selling them. As discussed in Note 17 - Contingencies and Other Disclosures, FHN's principal remaining exposures for those activities relate to (i) indemnification claims by underwriters, loan purchasers, and other parties which assert that FHN-originated loans caused or contributed to losses which FHN is legally obliged to indemnify, and (ii) indemnification or other claims related to FHN's servicing of pre-2009 mortgage loans.
FHN’s approach for determining the adequacy of the repurchase and foreclosure reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining potential loss content, claims are analyzed by purchaser, vintage, and claim type. FHN considers various inputs including claim rate estimates, historical average repurchase and loss severity rates, mortgage insurance cancellations, and mortgage insurance curtailment requests. Inputs are applied to claims in the
active pipeline, as well as to historical average inflows to estimate loss content related to potential future inflows. Management also evaluates the nature of claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.



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Repurchase and Foreclosure Liability
FHN's repurchase and foreclosure liability, primarily related to its pre-2009 mortgage business, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. The liability contemplates repurchase/make-whole and damages obligations and estimates for probable incurred losses associated with loan populations excluded from the settlements with the
GSEs, as well as other whole loans sold, mortgage insurance cancellations rescissions, and loans included in bulk servicing sales effected prior to the settlements with the GSEs. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision. The repurchase and foreclosure liability was $17 million and $16 million as of December 31, 2021 and 2020, respectively.
Market Uncertainties & Prospective Trends
FHN’s future results could be affected both positively and negatively by several known trends. Key among those are changes in the U.S. and global economy and outlook, government actions affecting interest rates, government actions intended to stimulate the economy, and government actions and proposals which could have negative impacts on the economy at large or on certain businesses. Additional risks relate to how the COVID-19
pandemic continues to affect FHN’s clients, political uncertainty, changes in federal policies (including those publicly discussed, formally proposed, or recently implemented) and the potential impacts of those changes on our businesses and clients, and whether FHN’s strategic initiatives will succeed.
Federal Reserve Policy in Transition
In March 2020, the Federal Reserve "eased" by lowering short-term interest rates and starting an asset purchase program intended to lower longer-term interest rates and foster access to credit. The effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates. These changes in interest rates and the volatility in the market negatively impacted FHN’s net interest margin. Amortization of net processing fees related to government relief programs associated with the COVID-19 pandemic, including the Paycheck Protection Program, offset a portion of the net interest margin decline.
During 2021, easing policy continued. For most of the year interest rates fluctuated but remained very low, continuing to adversely impact FHN's net interest margin. Late in 2021 the Federal Reserve announced that it will moderate and eventually reverse its easing policy, starting by reducing ("tapering") its asset purchases. The Federal Reserve's public comments suggest (without any guarantee) that tapering will conclude early in 2022, after
which no further asset purchases will be made, and that hikes in short-term rates will commence in 2022, possibly in the first quarter. FHN cannot predict whether short term interest rates will be raised during the taper period or at any other point in time.
Long term interest rates started to rise late in 2021, continuing in 2022, though they remain very low by historical standards. Public expectations related to tapering, coupled with public Federal Reserve comments and concerns about inflation in the U.S., likely have been significant contributors to recent changes in long-term rates.
Recently the Federal Reserve has indicated an expectation to reduce its asset holdings in 2022 after purchases have stopped. Although not currently expected, it is possible that the Federal Reserve may decide to sell assets, rather than merely letting them mature, in an effort to increase long term interest rates more quickly or more robustly.
COVID-19 Pandemic
The COVID-19 pandemic caused extraordinary disruption that negatively impacted the economy and business activity, especially lending (other than lending related to home mortgages). The impact of the pandemic on FHN's performance is discussed further in Results of Operations within this Item 7 beginning on page 63. During the course of 2021, FHN saw the lending pipeline improve in several areas (unrelated to home mortgages) as COVID-19 restrictions were partially or fully eased in most of FHN's
markets. Late in 2021 and continuing into early 2022, the Omicron variant of the COVID-19 virus has triggered reinstatement of some restrictions in some markets. Even so, broadly speaking FHN expects the impact of COVID-19 restrictions to continue to diminish over the rest of this year with further progress in vaccination rates and in treatments for those who are infected. However, as demonstrated by variants that arose in 2021, the risk of resurgence remains.


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FHN continues to closely monitor the impact of the pandemic and its effects on FHN's clients and communities and on the financial markets. Throughout the pandemic, FHN has worked with clients to discuss challenges and solutions, provide line draws and new
extensions to existing clients, provide support for small businesses (including lending through the PPP), and provide lending and deposit assistance through deferrals and waived fees.
LIBOR & Reference Rate Reform
LIBOR
The London Inter-Bank Offered Rate ("LIBOR") has been the most widely used reference rate in the world for many years. A substantial majority of FHN's floating rate loans use LIBOR, denominated in U.S. Dollars ("USD"), as the reference rate to determine the interest rate paid by the client/borrower. In addition, certain floating-rate securities issued by FHN use USD LIBOR as the reference rate.
LIBOR is based on a mix of transaction-based data and expert judgment about market conditions. It is published in different tenors, which are time periods such as 1-week, 1-month, 12-month, etc.
LIBOR Discontinuance
About a decade ago, evidence emerged that some members of the panel that set LIBOR may have manipulated the published LIBOR rates rather than using strictly good-faith judgments. Several banks were fined.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”)—the governmental regulator of LIBOR—announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In 2021, the FCA announced that tenors of USD LIBOR will no longer be published as follows:
One week and 2-month USD LIBOR will not be published after December 31, 2021; and
All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and 12-month tenors) will not be published after June 30, 2023.
U.S. Regulatory Position
In 2020, the Federal Reserve, the OCC, and the FDIC jointly encouraged U.S. banks to transition away from LIBOR for new contracts as soon as practicable and, in any event, by December 31, 2021. They noted that entering into new contracts that use LIBOR as a reference rate after December 31, 2021 would create safety and soundness risks.
Alternatives to LIBOR
LIBOR became the market-preferred reference rate because it was perceived by lenders and borrowers as being superior to alternatives in a wide range of circumstances. FHN believes that no single alternative reference rate will immediately replace LIBOR for USD transactions. Instead, FHN believes it is likely that different
alternatives will be used in different circumstances. Although it is difficult to predict which alternatives will be favored by market participants in any particular situation, at this time it seems likely that the following alternative reference rates may be used by market participants once USD LIBOR is discontinued:
SOFR. The Alternative Reference Rates Committee (“ARRC”) is a group of private-market and financial regulator participants convened by the Federal Reserve and the New York Federal Reserve Bank to help ensure a successful transition from USD LIBOR to a more robust reference rate. The ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative. SOFR is based on actual transaction data for the U.S. Treasury repurchase market. Accordingly, SOFR represents a riskless secured overnight rate.
Term SOFR. Published by CME Group, Term SOFR is a forward-looking rate, with 1-month, 3-month and 6-month tenors, and is based on SOFR futures contracts. The ARRC has recommended conventions for Term SOFR rates and has recommended CME Group as the administrator for Term SOFR.
AMERIBOR. The American Interbank Offered Rate (“AMERIBOR”) Index is produced by the American Financial Exchange. AMERIBOR is based on actual transaction data involving credit decisions by many financial institutions, on an unsecured basis.
BSBY. The Bloomberg short-term bank yield index ("BSBY") is a proprietary rate index calculated and published by Bloomberg Index Services Limited. BSBY is based on actual transaction data involving unsecured credit.
Prime. Although traditional prime rates (with each bank setting its own) are not likely to regain the prominence they had decades ago when U.S. banks were much smaller and the industry was more fragmented, for some clients and products banks may increase their usage of prime rates.
The alternatives listed above were made available to the majority of FHN’s commercial clients starting in November 2021. In accordance with the U.S. regulatory position, FHN ceased entering into new LIBOR based contracts as of December 31, 2021. Other alternative reference rates are being developed and FHN may consider them at a future time.


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Each alternative reference rate has advantages and disadvantages compared with other alternatives in various circumstances. Despite being supported by the Federal Reserve's ARRC, SOFR may not gain the level of market acceptance and usage that USD LIBOR enjoyed within the U.S. Key aspects of SOFR that support this view are: (a) SOFR fundamentally is an overnight rate, and so is not easily or reliably translated into typical LIBOR tenors; and (b) SOFR is both secured and riskless, and so does not necessarily track a bank's cost of funds very well. For a bank, it is critical to avoid significant mismatches over time between its (variable) cost of funds and its (variable) interest income. Term SOFR attempts to address some of these shortcomings, but not all of them.
All of the alternative reference rates selected by FHN to date meet the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks, as affirmed by the rate administrator and/or an independent auditor. While banking regulators have stated that banks are free to choose the index rates they offer clients, some public sector officials have urged caution in using the new credit sensitive alternative reference rates, primarily due to the robustness of underlying data used to derive the rates. More specifically, there is concern of an “inverted pyramid” effect where a large number of financial contracts could be priced using an index derived from a relatively low volume of transactions. In an interagency statement on October 20, 2021, U.S. banking regulatory agencies noted that “supervised institutions should understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it”. IOSCO has also warned of the potential for the “inverted pyramid” problem and will monitor how the IOSCO label is used by administrators.
FHN is monitoring the credit sensitive reference rates and regulatory guidance around use of such rates. FHN plans to limit use of credit sensitive rates to commercial loans (~2% of global USD LIBOR market) and related customer swaps (pending development of derivatives markets for these rates). Additionally, FHN expects that each financial contract will contain fallback language to guide transition from a credit sensitive rate to an alternative should that action be deemed necessary in the future.
FHN's Actions to Date & Transition Plans
Starting in 2019, legacy First Horizon and legacy IBERIABANK both modernized the fallback language used in their loan documentation to better handle how floating rate loans would be re-set if LIBOR ceased to be published during the loan term.
In the fourth quarter of 2021, FHN ceased using USD LIBOR for new lending and renegotiated terms with clients whose loans are based on 1-week or 2-month USD LIBOR, which ceased publication at the end of 2021. Only a small portion of FHN's clients had such loans.
On the consumer side, the only LIBOR-based product FHN currently offers was adjustable rate mortgages. For new originations, these products transitioned to SOFR beginning in November 2021. SOFR is emerging as a market standard for adjustable rate mortgages and is the conforming convention for Fannie Mae and Freddie Mac.
For all products, FHN developed a go-to-market strategy which included pricing considerations, associate training, and client communications. All required systems, processes, and reporting were updated to accommodate the transition. Each of the leading alternatives mentioned above is undergoing further development and refinement, and it remains unclear which alternative(s) FHN and its clients generally will prefer, and in which situations. Given these considerations, FHN's plans may change to meet evolving market conditions and preferences.
FHN has established a LIBOR Transition Office to assist associates in working with their clients to re-negotiate terms of loan and derivative contracts that extend past the June 30, 2023 cessation date for the remaining USD LIBOR tenors noted above.
While FHN has exposure to LIBOR in various contracts (e.g. securities, derivatives), FHN's primary exposure to LIBOR is in floating rate loans to customers and derivative contracts issued to customers through FHN Financial. Below is a summary of these exposures as of December 31, 2021:
Table 7.29
LIBOR EXPOSURES
(Dollars in billions)As of
December 31, 2021
Mature after
June 2023
Commercial loans (a)$25 $17 
Consumer loans (a)
Customer swaps (b)11 10 
(a) Amounts represent outstanding loan balances as of December 31, 2021.
(b) FHN has entered into offsetting upstream transactions with dealers to offset its market risk exposure.

FHN is assessing the potential impacts on LIBOR-based securities and derivative instruments.


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Financial Accounting Aspects
In 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides several optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The scope of ASU 2020-04 was expanded in 2021 with ASU 2021-01, "Scope". Refer to the Accounting Changes Issued but Not Currently Effective section of Note 1 - Significant Accounting Policies for additional information.
In December 2021, the FASB voted to extend the relief under Topic 848 (Reference Rate Reform) by two years, from December 31, 2022 to December 31, 2024.
U.S. Tax Accommodation
On December 30, 2021, the IRS released final guidance that is intended to facilitate the transition of existing contracts from LIBOR to new reference rates without triggering modification accounting or taxable exchange treatment for those contracts. This guidance specifies what must be met in order to qualify for the beneficial transition approach and FHN is considering this guidance in its transition plans.
Critical Accounting Policies & Estimates
Allowance for Loan and Lease Losses
Management’s policy is to maintain the ALLL at a level sufficient to absorb expected credit losses in the loan and lease portfolio. Management performs periodic and systematic detailed reviews of its loan and lease portfolio to identify trends and to assess the overall collectability of the portfolio. Management believes the accounting estimate related to the ALLL is a “critical accounting estimate” as: (1) changes in it can materially affect the provision for loan and lease losses and net income, (2) it requires management to predict borrowers’ likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions, (3) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms, (4) it requires estimation of a reasonable and supportable forecast period for credit losses for loan portfolio segments before reversion to historical loss levels over the remaining life of a loan and (5) expected future recoveries of amounts previously charged off must be estimated. Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan’s and leases's estimated life.
FHN believes that the principal assumptions underlying the accounting estimates made by management include: (1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific industries and specific issues with respect to single borrowers; (2) borrower specific information made available to FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar credit risk characteristics and will behave similarly; (4) the lives for loan portfolio pools have been estimated properly, including consideration of expected prepayments; (5) the economic forecasts utilized
and associated weighting selected by management in the modeling of expected credit losses are reflective of future economic conditions; (6) entity-specific historical loss information has been properly assessed for all loan portfolio segments as the initial basis for estimating expected credit losses; (7) the reasonable and supportable periods for loan portfolio segments have been properly determined; (8) the reversion methodologies and timeframes for migration from the reasonable and supportable period to the use of historical loss rates are reasonable; (9) expected recoveries of prior charge off amounts have been properly estimated; and (10) qualitative adjustments to modeled loss results reasonably reflect expected future credit losses as of the date of the financial statements.
While management uses the best information available to establish the ALLL, future adjustments to the ALLL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. Such adjustments to prior estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
Selection and weighting of macroeconomic forecasts are the most significant inputs in quantitative ALLL calculations. Due to the sensitivity of the ALLL determination to macroeconomic forecasts, changes in those forecasts can result in materially different results between reporting periods. In the determination of the ALLL as of December 31, 2021, FHN utilized Moody's Baseline, S1 (more favorable) and S3 (adverse) scenarios for the calculation of the ALLL. FHN placed the most weight on Moody's Baseline scenario but also included weightings for S1 and S3 scenarios, primarily to reflect the uncertainty of macroeconomic forecasts related to the ongoing economic impacts from the COVID-19 pandemic.


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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Due to the dynamic relationship of macroeconomic inputs in modeling calculations, quantifying the effects of changing individual inputs is highly challenging. Additionally, management applies judgment in developing qualitative adjustments that are considered necessary to appropriately reflect elements of credit risk that are not captured in the quantitative model results. To provide some hypothetical sensitivity analysis, FHN prepared two alternate quantitative calculations, applying 100% weighting to Moody's Baseline and S3 (adverse) scenarios.
These hypothetical calculations resulted in a 2.5% reduction and 17.5% increase, respectively, in ALLL in comparison to the ALLL recorded at December 31, 2021, inclusive of qualitative adjustments that are affected by the weighting of forecast scenarios.
See Note 1 - Significant Accounting Policies and Note 5 - Allowance for Credit Losses for detail regarding FHN’s processes, models, and methodology for determining the ALLL.
Income Taxes
FHN is subject to the income tax laws of the U.S. and the states and jurisdictions in which it operates. FHN accounts for income taxes in accordance with ASC 740, "Income Taxes". Significant judgments and estimates are required in the determination of the consolidated income tax expense. FHN income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.
Income tax expense consists of both current and deferred taxes. Current income tax expense is an estimate of taxes to be paid or refunded for the current period and includes income tax expense related to uncertain tax positions. A DTA or a DTL is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred taxes can be affected by changes in tax rates applicable to future years, either as a result of statutory changes or business changes that may change the jurisdictions in which taxes are paid. Additionally, DTAs are subject to a “more likely than not” test to determine whether the full amount of the DTAs should be realized in the financial statements. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to or generated with respect to the DTA. In projecting future taxable income, FHN incorporates assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the
implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business. If the “more likely than not” test is not met, a valuation allowance must be established against the DTA.
The income tax laws of the jurisdictions in which FHN operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In determining if a tax position should be recognized and in establishing a provision for income tax expense, FHN must make judgments and interpretations about the application of these inherently complex tax laws. Interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. FHN attempts to resolve disputes that may arise during the tax examination and audit process. However, certain disputes may ultimately be resolved through the federal and state court systems.
FHN monitors relevant tax authorities and revises estimates of accrued income taxes on a quarterly basis. Changes in estimates may occur due to changes in income tax laws and their interpretation by the courts and regulatory authorities. Revisions of estimates may also result from income tax planning and from the resolution of income tax controversies. Revisions in estimates may be material to operating results for any given period.
See Note 15 - Income Taxes for additional information including discussion of valuation allowances related to deferred tax assets and the potential impact of unrecognized tax benefits on future earnings.
Contingent Liabilities
A liability is contingent if the amount or outcome is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on management’s estimates about the probability of outcomes and their ability to estimate the range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable
that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process, management is required to make assumptions about matters that are by their nature highly uncertain and difficult to estimate.


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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
The assessment of contingent liabilities, including legal contingencies, involves the use of critical estimates, assumptions, and judgments. Management’s estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or decisions of arbitrators, will not differ from management’s assessments. Whenever practicable, management consults with third-party experts (e.g., attorneys, accountants, claims administrators, etc.) to assist with the
gathering and evaluation of information related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements.
See Note 17 - Contingencies and Other Disclosures for additional information regarding FHN's existing material contingent liabilities, including those with and without loss accruals, and discussion of reasonably possible loss amounts for pending litigation matters.
Accounting Changes with Extended Transition Periods
Refer to Note 1 – Significant Accounting Policies for a detail of accounting changes with extended transition
periods, which section is incorporated into this MD&A by this reference.
Non-GAAP Information
Certain measures are included in this report are “non-GAAP”, meaning they are not presented in accordance with U.S. GAAP and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the capital position or financial results of FHN and its business segments. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
The non-GAAP measures presented in this report are: pre-provision net revenue, return on average tangible common equity, tangible common equity to tangible assets, adjusted tangible common equity to risk-weighted assets, tangible book value per common share, and loans and leases excluding PPP loans. Table 7.30 appearing in the MD&A (Item 7 of Part II) of this report provides a reconciliation of non-GAAP items presented in this report to the most comparable GAAP presentation.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for
comparability to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking regulators in reviewing capital adequacy of financial institutions. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in this MD&A include: common equity tier 1 capital, generally defined as common equity less goodwill, other intangibles, and certain other required regulatory deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments that cannot be redeemed at the option of the holder) adjusted for certain items under risk based capital regulations; and risk-weighted assets, which is a measure of total on- and off-balance sheet assets adjusted for credit and market risk, used to determine regulatory capital ratios.
The following table provides a reconciliation of non-GAAP items presented in this MD&A to the most comparable GAAP presentation:
Table 7.30
NON-GAAP TO GAAP RECONCILIATION
(Dollars in millions; shares in thousands)202120202019
Pre-provision Net Revenue (Non-GAAP)
Net interest income (GAAP)$1,994 $1,662 $1,210 
Plus: Noninterest income (GAAP)1,076 1,492 654 
Total Revenues (GAAP)3,070 3,154 1,864 
Less: Noninterest expense (GAAP)2,096 1,718 1,233 
Pre-provision Net Revenue (Non-GAAP)$974 $1,436 $631 
Tangible Common Equity (Non-GAAP) 
(A) Total equity (GAAP)$8,494 $8,307 $5,076 
Less: Noncontrolling interest (a)295 295 295 


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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Less: Preferred stock (a)520 470 96 
(B) Total common equity7,679 7,542 4,685 
Less: Goodwill and other intangible assets (GAAP) (b)1,809 1,865 1,563 
(C) Tangible common equity (Non-GAAP)5,870 5,677 3,122 
Less: Unrealized gains (losses) on AFS securities, net of tax(36)108 31 
(D) Adjusted tangible common equity (Non-GAAP)$5,906 $5,569 $3,091 
Tangible Assets (Non-GAAP)  
(E) Total assets (GAAP)$89,092 $84,209 $43,311 
Less: Goodwill and other intangible assets (GAAP) (b)1,809 1,865 1,563 
(F) Tangible assets (Non-GAAP)$87,283 $82,344 $41,748 
Average Tangible Common Equity (Non-GAAP)  
Average total equity (GAAP)$8,479 $6,609 $4,920 
Less: Average noncontrolling interest (a)295 295 295 
Less: Average preferred stock (a)506 297 96 
(G) Total average common equity7,678 6,017 4,529 
Less: Average goodwill and other intangible assets (GAAP) (b)1,836 1,696 1,575 
(H) Average tangible common equity (Non-GAAP)$5,842 $4,321 $2,954 
Net Income Available to Common Shareholders  
(I) Net income available to common shareholders$962 $822 $435 
Risk Weighted Assets   
(J) Risk weighted assets (c)$64,183 $63,140 $37,046 
Period-end shares outstanding
(K) Period-end shares outstanding 533,577 555,031 311,469 
Ratios
(A)/(E) Total period-end equity to period-end assets (GAAP)9.53 %9.86 %11.72 %
(C)/(F) Tangible common equity to tangible assets (Non-GAAP) 6.73 6.89 7.48 
(D)/(J) Adjusted tangible common equity to risk weighted assets (Non-GAAP) 9.20 8.82 8.34 
(I)/(G) Return on average common equity (GAAP)12.53 13.66 9.60 
(I)/(H) Return on average tangible common equity (Non-GAAP)16.46 19.03 14.71 
(B)/(K) Book value per common share (GAAP)$14.39 $13.59 $15.04 
(C)/(K) Tangible book value per common share (Non-GAAP)$11.00 $10.23 $10.02 
Loans and leases excluding PPP loans (Non-GAAP)
Commercial loans and leases excluding PPP loans$42,139 $41,327 
PPP loans1,038 4,052 
Total commercial loans and leases43,177 45,379 
Total consumer loans11,682 12,853 
Total loans and leases$54,859 $58,232 
(a)Included in total equity on the Consolidated Balance Sheets.
(b)Includes goodwill and other intangible assets, net of amortization.
(c)Defined by and calculated in conformity with bank regulations applicable to FHN.



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ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
The information called for by this Item is incorporated herein by reference to: 2021 MD&A (Item 7), which begins on page 60 of this report; Note 22-Derivatives, which begins on page 184 of this report; and Note 23-Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions, which begins on page 191 of this report. Within 2021 MD&A,
these sections are especially pertinent to this Item 7A: Market Risk Management and Interest Rate Risk Management which begin, respectively, on pages 91 and 93 of this report. Notes 22 and 23 are part of our 2021 Financial Statements (Item 8).




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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
ITEM 8 TOPICS
Item 8.    Financial Statements and Supplementary Data

TABLE OF ITEM 8 TOPICS


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
ITEM 8 TOPICS


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
MANAGEMENT REPORT ON ICOFR
Report of Management on Internal Control over Financial Reporting

Management at First Horizon Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. First Horizon Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a control. Moreover, effectiveness must necessarily be considered according to the existing state of the art of internal control. Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.
Management assessed the effectiveness of First Horizon Corporation’s internal control over financial reporting as of December 31, 2021. This assessment was based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment and those criteria, management believes that First Horizon Corporation maintained effective internal control over financial reporting as of December 31, 2021.
KPMG LLP, the independent registered public accounting firm that audited First Horizon Corporation's financial statements, issued an audit report on First Horizon Corporation’s internal control over financial reporting. That report appears on the following page.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
OPINION ON ICOFR
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon Corporation:

Opinion on Internal Control Over Financial Reporting
We have audited First Horizon Corporation and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Memphis, Tennessee
March 1, 2022


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Horizon Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments — Credit Losses.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for loan losses for loans collectively evaluated for impairment

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s total allowance for loan losses as of December 31, 2021 was $670 million, of which a portion related to the allowance for loan losses for loans


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
collectively evaluated for impairment (the collective ALLL). The collective ALLL includes the measure of expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. The Company estimated the collective ALLL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure at default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. The Company uses models or assumptions to develop expected loss forecasts, which incorporate a weighting approach for multiple macroeconomic forecasts over a four year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation periods, for the remaining estimated life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and prepayment models, the Company segments the portfolio into pools, generally incorporating loan grades for commercial loans. The Company uses qualitative adjustments to adjust historical loss information in situations where current loan characteristics differ from those in the historical loss information and for differences in economic conditions and other factors.

We identified the assessment of the collective ALLL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ALLL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ALLL methodology, including the methods and models used to estimate the PD, LGD, and prepayments and their significant assumptions, which included the reasonable and supportable forecast period, the economic forecast scenarios and macroeconomic assumptions. The assessment also included the evaluation of certain qualitative adjustments and their significant assumptions. The significant assumptions are sensitive to variation, such that minor changes in the assumption can cause significant changes in the estimates. The assessment also included an evaluation of the conceptual soundness and performance of the PD, LGD, and prepayments models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ALLL estimate, including controls over the:

assessment of the collective ALLL methodology

performance monitoring of the PD, LGD and prepayment models

continued use and appropriateness of changes to the PD, LGD, and prepayment models, including the significant assumptions used in the PD, LGD, and prepayment models

development of the qualitative adjustments, including the significant assumptions used in the measurement of the qualitative adjustments

analysis of the collective ALLL results, trends, and ratios.

We evaluated the Company’s process to develop the collective ALLL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

evaluating the Company’s collective ALLL methodology for compliance with U.S. generally accepted accounting principles
evaluating judgments made by the Company relative to the performance testing of the PD, LGD, and prepayment models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
assessing the conceptual soundness and performance testing of the PD, LGD, and prepayment models by inspecting the model documentation to determine whether the models are suitable for their intended use


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
evaluating the selection of the economic forecast scenarios by comparing to the Company’s business environment and relevant industry practices
evaluating the length of the reasonable and supportable forecast period by comparing to specific portfolio risk characteristics and trends
evaluating the methodology used to develop the qualitative adjustments and the effect of those adjustments on the collective ALLL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the collective ALLL estimate by evaluating the:
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practice
potential bias in the accounting estimates.
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We have served as the Company’s auditor since 2002.
Memphis, Tennessee
March 1, 2022





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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheets
December 31,
(Dollars in millions, except per share amounts)20212020
Assets
Cash and due from banks$1,147 $1,203 
Interest-bearing deposits with banks14,907 8,351 
Federal funds sold and securities purchased under agreements to resell641 445 
Trading securities1,601 1,176 
Securities available for sale at fair value8,707 8,047 
Securities held to maturity (fair value of $705 and $10, respectively)
712 10 
Loans held for sale (including $258 and $405 at fair value, respectively)
1,172 1,022 
Loans and leases (including $— and $16 at fair value, respectively)
54,859 58,232 
Allowance for loan and lease losses(670)(963)
Net loans and leases54,189 57,269 
Premises and equipment665 759 
Goodwill1,511 1,511 
Other intangible assets298 354 
Other assets3,542 4,062 
Total assets$89,092 $84,209 
Liabilities
Noninterest-bearing deposits$27,883 $22,173 
Interest-bearing deposits47,012 47,809 
Total deposits74,895 69,982 
Trading liabilities426 353 
Short-term borrowings2,124 2,198 
Term borrowings1,590 1,670 
Other liabilities1,563 1,699 
Total liabilities80,598 75,902 
Equity
Preferred stock, Non-cumulative perpetual, no par value; authorized 5,000,000 shares; issued 26,750 and 26,250 shares, respectively
520 470 
Common stock, $0.625 par value; authorized 700,000,000 shares; issued 533,576,766 and 555,030,652 shares, respectively
333 347 
Capital surplus4,743 5,074 
Retained earnings2,891 2,261 
Accumulated other comprehensive loss, net(288)(140)
FHN shareholders' equity8,199 8,012 
Noncontrolling interest295 295 
Total equity8,494 8,307 
Total liabilities and equity$89,092 $84,209 

See accompanying notes to consolidated financial statements.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
Consolidated Statements of Income
Year Ended December 31
(Dollars in millions, except per share data; shares in thousands)202120202019
Interest income
Interest and fees on loans and leases$1,957 $1,722 $1,394 
Interest and fees on loans held for sale33 30 31 
Interest on investment securities121 105 121 
Interest on trading securities303547
Interest on other earning assets17631
Total interest income2,158 1,898 1,624 
Interest expense
Interest on deposits81 152 307 
Interest on trading liabilities6 13 
Interest on short-term borrowings51441
Interest on term borrowings72 64 53 
Total interest expense164 236 414 
Net interest income1,994 1,662 1,210 
Provision for credit losses(310)503 45 
Net interest income after provision for credit losses2,304 1,159 1,165 
Noninterest income
Fixed income406 423 279 
Deposit transactions and cash management175 148 132 
Mortgage banking and title income154 129 10 
Brokerage, management fees and commissions88 66 55 
Card and digital banking fees78 60 49 
Trust services and investment management51 39 30 
 Other service charges and fees44 26 21 
Securities gains (losses), net13 (6)— 
Purchase accounting gain(1)533 — 
Other income68 74 78 
Total noninterest income1,076 1,492 654 
Noninterest expense
Personnel expense1,210 1,033 695 
Net occupancy expense137 116 80 
Computer software116 85 61 
Operations services80 56 46 
Legal and professional fees68 84 72 
Contract employment and outsourcing67 24 13 
Amortization of intangible assets56 40 25 
Equipment expense47 42 34 
Communications and delivery373125
Advertising and public relations371834
Impairment of long-lived assets34 23 
Contributions14 41 11 
Other expense193141114
Total noninterest expense2,096 1,718 1,233 
Income before income taxes1,284 933 586 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
Income tax expense27476134
Net income$1,010 $857 $452 
Net income attributable to noncontrolling interest111211
Net income attributable to controlling interest$999 $845 $441 
Preferred stock dividends37236
Net income available to common shareholders$962 $822 $435 
Basic earnings per share$1.76 $1.90 $1.39 
Diluted earnings per share$1.74 $1.89 $1.38 
Weighted average common shares546,354 432,125 313,637 
Diluted average common shares551,241 433,717 315,657 
See accompanying notes to consolidated financial statements.


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2021 FORM 10-K ANNUAL REPORT

ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Consolidated Statements of Comprehensive Income
 
 Year Ended December 31
(Dollars in millions)202120202019
Net income$1,010 $857 $452 
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale(144)77 107 
Net unrealized gains (losses) on cash flow hedges(10)15 
Net unrealized gains (losses) on pension and other postretirement plans6 13 15 
Other comprehensive income (loss)(148)99 137 
Comprehensive income862 956 589 
Comprehensive income attributable to noncontrolling interest11 12 11 
Comprehensive income attributable to controlling interest$851 $944 $578 
Income tax expense (benefit) of items included in other comprehensive income:
Net unrealized gains (losses) on securities available for sale$(46)$25 $35 
Net unrealized gains (losses) on cash flow hedges(3)
Net unrealized gains (losses) on pension and other postretirement plans2 
See accompanying notes to consolidated financial statements.



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2021 FORM 10-K ANNUAL REPORT

ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Consolidated Statements of Changes in Equity
Preferred StockCommon Sock
(Dollars in millions, except per share data; shares in thousands)SharesAmountSharesAmountCapital
Surplus
Retained EarningsAccumulated
Other
Comprehensive
Income (Loss) (a)
Noncontrolling InterestTotal
Balance, December 31, 20181,000 $96 318,573 $200 $3,029 $1,542 $(376)$295 $4,786 
Adjustment to reflect adoption of ASU 2016-02— — — — — (1)— — (1)
Beginning balance, as adjusted 1,000 96 318,573 200 3,029 1,541 (376)295 4,785 
Net income— — — — — 441 — 11 452 
Other comprehensive income (loss)— — — — — — 137 — 137 
Comprehensive income (loss)— — — — — 441 137 11 589 
Cash dividends declared:
Preferred stock — — — — — (6)— — (6)
Common stock ($.56 per share)
— — — — — (178)— — (178)
Common stock repurchased (b)— — (9,100)(6)(128)— — — (134)
Common stock issued for:
Stock options exercised and restricted stock awards— — 1,996 — — — 
Stock-based compensation expense— — — — 22 — — — 22 
Dividends declared - noncontrolling interest of subsidiary preferred stock— — — — — — — (11)(11)
Balance, December 31, 20191,000 96 311,469 195 2,931 1,798 (239)295 5,076 
Adjustment to reflect adoption of ASU 2016-13— — — — — (96)— — (96)
Beginning balance, as adjusted1,000 96 311,469 195 2,931 1,702 (239)295 4,980 
Net income— — — — — 845 — 12 857 
Other comprehensive income (loss)— — — — — — 99 — 99 
Comprehensive income (loss)— — — — — 845 99 12 956 
Cash dividends declared:
Preferred stock— — — — — (23)— — (23)
Common stock ($.60 per share)
— — — — — (263)— — (263)
Preferred stock issuance (1,500 shares issued at $100,000 per share net of offering costs)
1,500 144 — — — — — — 144 
Common stock repurchased (b)— — (426)— (4)— — — (4)
Common stock issued for:
Stock options exercised and restricted stock awards— — 1,726 — — — — 
Issued in business combination (c)23,750 230 243,015 152 2,115 — — — 2,497 
Stock-based compensation expense— — — — 32 — — — 32 
Dividends declared - noncontrolling interest of subsidiary preferred stock— — — — — — — (12)(12)
Other (d)— — (753)— (7)— — — (7)
Balance, December 31, 202026,250 470 555,031 347 5,074 2,261 (140)295 8,307 
Net income— — — — — 999 — 11 1,010 
Other comprehensive income (loss)— — — — — — (148)— (148)
Comprehensive income (loss)— — — — — 999 (148)11 862 
Cash dividends declared:
Preferred stock— — — — — (32)— — (32)
Common stock ($0.60 per share)
— — — — — (332)— — (332)
Preferred stock issuance (1,500 shares issued at $100,000 per share net of offering costs)
1,500 145 — — — — — — 145 
Call of preferred stock(1,000)(95)— — — (5)— — (100)
Common stock repurchased (b)— — (25,063)(16)(400)— — — (416)
Common stock issued for:
Stock options exercised and restricted stock awards— — 3,609 26 — — — 28 
Stock-based compensation expense— — — — 43 — — — 43 
Dividends declared - noncontrolling interest of subsidiary preferred stock— — — — — — — (11)(11)
Balance, December 31, 202126,750 $520 533,577 $333 $4,743 $2,891 $(288)$295 $8,494 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(a)Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of other comprehensive income (loss) have been attributed solely to FHN as the controlling interest holder.
(b)2021, 2020, and 2019 include $401 million, $4 million, and $130 million, respectively, repurchased under share repurchase programs.
(c)See Note 2- Acquisitions and Divestitures for additional information.
(d)Represents shares canceled in connection with the resolution of remaining CBF dissenters' appraisal process and to cover taxes on the IBKC equity compensation grants that automatically vested as part of the merger.
See accompanying notes to consolidated financial statements.


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2021 FORM 10-K ANNUAL REPORT

ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows
 Year Ended December 31
(Dollars in millions) 202120202019
Operating Activities
Net income$1,010 $857 $452 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses(310)503 45 
Deferred income tax expense (benefit) (18)14 
Depreciation and amortization of premises and equipment61 52 44 
Amortization of intangible assets56 40 25 
Net other amortization and accretion(67)(30)(3)
Net (increase) decrease in trading securities1,824 1,912 1,423 
Net (increase) decrease in derivatives412 (223)(134)
Purchase accounting gain1 (533)— 
Stock-based compensation expense43 32 22 
Securities (gains) losses, net(13)— 
Loss on debt extinguishment26 — — 
Net (gains) losses on sale/disposal of fixed assets29 22 
(Gain) loss on BOLI(8)(5)(5)
Loans held for sale:
Purchases and originations(6,644)(4,710)(2,075)
Gross proceeds from settlements and sales4,451 2,907 818 
(Gain) loss due to fair value adjustments and other(205)(81)(7)
Other operating activities, net75 (545)189 
Total adjustments(269)(685)378 
Net cash provided by (used in) operating activities741 172 830 
Investing Activities
Proceeds from sales of securities available for sale68 629 192 
Proceeds from maturities of securities available for sale2,771 4,099 800 
Purchases of securities available for sale(3,736)(4,740)(630)
Purchases of securities held to maturity(720)— — 
Proceeds from prepayments of securities held to maturity 17 — — 
Proceeds from sales of premises and equipment42 12 20 
Purchases of premises and equipment(53)(58)(49)
Proceeds from sales and pay downs of loans classified as held to maturity — 20 
Proceeds from BOLI22 12 14 
Net (increase) decrease in loans and leases3,509 (819)(3,570)
Net (increase) decrease in interest-bearing deposits with banks(6,556)(6,187)795 
Cash (paid) received for acquisitions, net 2,071 — 
Other investing activities, net19 14 18 
Net cash provided by (used in) investing activities(4,617)(4,967)(2,390)
Financing Activities
Common stock:
Stock options exercised28 
Cash dividends paid(333)(222)(171)
Repurchase of shares(416)(4)(134)
Cancellation of common shares (7)— 
Preferred stock issuance145 144 — 
Call of preferred stock(100)— — 
Cash dividends paid - preferred stock - noncontrolling interest(11)(12)(11)


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash dividends paid - preferred stock(33)(17)(6)
Net increase (decrease) in deposits4,919 7,143 (253)
Net increase (decrease) in short-term borrowings(75)(1,529)2,384 
Increases (decreases) in term borrowings(108)(327)(396)
Net cash provided by (used in) financing activities4,016 5,176 1,422 
Net increase (decrease) in cash and cash equivalents140 381 (138)
Cash and cash equivalents at beginning of period1,648 1,267 1,405 
Cash and cash equivalents at end of period$1,788 $1,648 $1,267 
Supplemental Disclosures
Total interest paid$170 $261 $411 
Total taxes paid258 105 71 
Total taxes refunded30 36 28 
Transfer from loans to OREO4 
Transfer from loans HFS to trading securities2,232 1,742 1,321 
Transfer from loans to loans HFS31 31 
See accompanying notes to consolidated financial statements.


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2021 FORM 10-K ANNUAL REPORT

ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Notes to the Consolidated Financial Statements

Note 1—Significant Accounting Policies
Basis of Accounting
The consolidated financial statements of FHN, including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. This preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results.
Merger with IBERIABANK Corporation
On July 1, 2020, FHN and IBERIABANK Corporation closed their merger of equals transaction. Historical periods prior to the closing of the merger only reflect results of legacy FHN operations. Subsequent to closing, results reflect all post-merger activity. Refer to Note 2 – Acquisitions and Divestitures for additional information regarding the transaction.
Reclassification
In connection with the IBKC merger, certain captions in the Consolidated Balance Sheets and Consolidated Statements of Income, loan categories, and business activities within the segments were realigned. Amounts reported in prior periods' consolidated financial statements, which represent FHN's pre-merger financial results, have been reclassified to conform to the current presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities for which FHN or a subsidiary has been determined to be the primary beneficiary are also consolidated. Affiliates for which FHN is not considered the primary beneficiary and in which FHN does not have a controlling financial interest are accounted for by the equity method. These investments are included in other assets, and FHN’s proportionate share of income or loss is included in noninterest income. All significant intercompany transactions and balances have been eliminated.
Revenues
Revenue is recognized when the performance obligations under the terms of a contract with a client are satisfied in an amount that reflects the consideration FHN expects to be entitled. FHN derives a significant portion of its revenues from fee-based services. Noninterest income
from transaction-based fees is generally recognized immediately upon completion of the transaction. Noninterest income from service-based fees is generally recognized over the period in which FHN provides the service. Any services performed over time generally require that FHN render services each period and therefore FHN measures progress in completing these services based upon the passage of time and recognizes revenue as invoiced.
Following is a discussion of FHN's key revenues within the scope of ASC 606, "Revenue from Contracts with Customers", except as noted.
Fixed Income
Fixed income includes fixed income securities sales, trading, and strategies, loan sales and derivative sales which are not within the scope of revenue from contracts with customers. Fixed income also includes investment banking fees earned for services related to underwriting debt securities and performing portfolio advisory services. FHN's performance obligation for underwriting services is satisfied on the trade date while advisory services is satisfied over time.
Mortgage Banking and Title Income
Mortgage banking and title income includes mortgage servicing income, title income, mortgage loan originations and sales, derivative settlements, as well as any changes in fair value recorded on mortgage loans and derivatives. Mortgage banking income from 1) sale of loans, 2) settlement of derivatives, 3) changes in fair value of loans, derivatives and servicing rights and 4) servicing of loans are not within the scope of revenue from contracts with customers. Title income is earned when FHN fulfills its performance obligation at the point in time when the services are completed.
Deposit Transactions and Cash Management
Deposit transactions and cash management activities include fees for services related to consumer and commercial deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (Automated Clearing House and Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients. FHN's obligation for transaction-based services is satisfied at the time of the transaction when the service is delivered while FHN's obligation for service based fees is satisfied over the course of each month.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Brokerage, Management Fees and Commissions
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and annuity and mutual fund sales. Asset-based management fees are charged based on the market value of the client’s assets. The services associated with these revenues, which include investment advice and active management of client assets are generally performed and recognized over a month or quarter. Transactional revenues are based on the size and number of transactions executed at the client’s direction and are generally recognized on the trade date.
Trust Services and Investment Management
Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services. Obligations for trust services are generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in nature.
Card and Digital Banking Fees
Card and digital banking fees include credit interchange and network revenues and various card-related fees. Interchange income is recognized concurrently with the delivery of services on a daily basis. Card-related fees such as late fees, currency conversion, and cash advance fees are loan-related and excluded from the scope of ASC 606.
Contract Balances
As of December 31, 2021, accounts receivable related to products and services on non-interest income were $12 million. For the year ended December 31, 2021, FHN had no material impairment losses on non-interest accounts receivable and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheets as of December 31, 2021. Credit risk is assessed on these accounts receivable each reporting period and the amount of estimated uncollectible receivables is not material.
Transaction Price Allocated to Remaining Performance Obligations
For the year ended December 31, 2021, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.
Refer to Note 20 - Business Segment Information for a reconciliation of disaggregated revenue by major product line and reportable segment.
Statements of Cash Flows
For purposes of these statements, cash and due from banks, federal funds sold, and securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are usually sold for one-day periods, and securities purchased under agreements to resell are short-term, highly liquid investments.
Debt Investment Securities
Debt securities that may be sold prior to maturity are classified as AFS and are carried at fair value. The unrealized gains and losses on debt securities AFS, including securities for which no credit impairment exists, are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders’ equity and the Consolidated Statements of Comprehensive Income. Debt securities which management has the intent and ability to hold to maturity are reported at amortized cost. Interest only strips were classified in securities AFS and valued at elected fair value in periods prior to October 1, 2021 at which time they were transferred to trading securities. See Note 24 - Fair Value of Assets and Liabilities for additional information. Realized gains and losses (i.e., from sales) for debt investment securities are determined by the specific identification method and reported in noninterest income.
The evaluation of credit risk for HTM debt securities mirrors the process described below for loans held for investment. AFS debt securities are reviewed for potential credit impairment at the individual security level. The evaluation of credit risk includes consideration of third-party and government guarantees (both explicit and implicit), senior or subordinated status, credit ratings of the issuer, the effects of interest rate changes since purchase and observable market information such as issuer-specific credit spreads. Credit losses for AFS debt securities are generally recognized through establishment of an allowance for credit losses that cannot exceed the amount by which amortized cost exceeds fair value. Charge-offs are recorded as reductions of the security’s amortized cost and the credit allowance. Subsequent improvements in estimated credit losses result in reduction of the credit allowance, but not beyond zero. However, if FHN has the intent to sell or if it is more-likely-than-not that it will be compelled to sell a security with an unrecognized loss, the difference between the security's carrying value and fair value is recognized through earnings and a new amortized cost basis is established for the security (i.e., no allowance for credit losses is recognized).
FHN has elected to exclude accrued interest receivable from the fair value and amortized cost basis on debt securities when assessing whether these securities have experienced credit impairment. Additionally, FHN has elected to not measure an allowance for credit losses on AIR for debt securities based on its policy to write off


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
uncollectible interest in a timely manner, which generally occurs when delinquency reaches no more than 90 days for all security types. Any such write offs are recognized as a reduction of interest income. AIR for debt securities is included within other assets in the Consolidated Balance Sheet.
Equity Investment Securities
Equity securities are classified in other assets. Banks organized under state law may apply to be members of the Federal Reserve System. Each member bank is required to own stock in its regional Federal Reserve Bank. Given this requirement, FRB stock may not be sold, traded, or pledged as collateral for loans. Membership in the Federal Home Loan Bank network requires ownership of capital stock. Member banks are entitled to borrow funds from the FHLB and are required to pledge mortgage loans as collateral. Investments in the FHLB are non-transferable and, generally, membership is maintained primarily to provide a source of liquidity as needed. FRB and FHLB stock are recorded at cost and are subject to impairment reviews. FHN's subsidiary, First Horizon Bank, was a state member bank throughout 2021.
Other equity investments primarily consist of mutual funds which are marked to fair value through earnings. Smaller balances of equity investments without a readily determinable fair value are recorded at cost minus impairment with adjustments through earnings for observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Fed Funds Sold and Purchased
Fed funds sold and purchased represent unsecured overnight funding arrangements between participants in the Federal Reserve system primarily to assist banks in meeting their regulatory cash reserve requirements. Fed Funds sold are evaluated for credit risk each reporting period. Due to the short duration of each transaction and the history of no credit losses, no credit loss has been recognized.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
FHN purchases short-term securities under agreements to resell which are accounted for as collateralized financings except where FHN does not have an agreement to sell the same or substantially the same securities before maturity at a fixed or determinable price. All of FHN’s securities purchased under agreements to resell are recognized as collateralized financings. Securities delivered under these transactions are delivered to either the dealer custody account at the FRB or to the applicable counterparty. Securities sold under agreements to repurchase are offered to cash management clients as an automated, collateralized investment account. Securities sold under agreements to repurchase are also used by the consumer/commercial bank to obtain favorable borrowing rates on
its purchased funds. All of FHN's securities sold under agreements to repurchase are secured borrowings.
Collateral is valued daily and FHN may require counterparties to deposit additional securities or cash as collateral, or FHN may return cash or securities previously pledged by counterparties, or FHN may be required to post additional securities or cash as collateral, based on the contractual requirements for these transactions.
FHN’s fixed income business utilizes securities borrowing arrangements as part of its trading operations. Securities borrowing transactions generally require FHN to deposit cash with the securities lender. The amount of cash advanced is recorded within securities purchased under agreements to resell in the Consolidated Balance Sheets. These transactions are not considered purchases and the securities borrowed are not recognized by FHN. FHN does not conduct securities lending transactions.
Securities purchased under agreements to resell and securities borrowing arrangements are evaluated for credit risk each reporting period. As presented in Note 23 - Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions, these agreements are collateralized by the related securities and collateral maintenance provisions with counterparties, including replenishment and adjustment on a transaction specific basis. This collateral includes both the securities collateral for each transaction as well as offsetting securities sold under agreements to repurchase with the same counterparty. Given the history of no credit losses and collateralized nature of these transactions, no credit loss has been recognized.
Loans Held for Sale
Loans originated or purchased for which management lacks the intent to hold are included in loans held for sale in the Consolidated Balance Sheets. FHN generally accounts for loans held for sale at the lower of amortized cost or market value, with an exception for certain mortgage loans held for sale and repurchased loans that are not governmentally insured which are carried under the fair value option of reporting.
Fair Value Option Election. These loans consist of originated fixed rate single-family residential mortgage loans that are committed to be sold in the secondary market. Gains and losses on these mortgage loans are included in mortgage banking and title income.
Other loans held for sale. For these loans, gains on sale are recognized through noninterest income. Net unrealized losses, if any, are recognized through a valuation allowance that is also recorded as a charge to noninterest income.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Loans and Leases
Generally, loans are stated at principal amounts outstanding, net of unearned income. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs as well as premiums and discounts are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs, premiums and discounts are recognized in interest income upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on a straight-line basis over the commitment period.
Equipment financing leases to commercial clients are primarily classified as direct financing and sales-type leases. Equipment financing leases are reported at the net lease investment, which represents the sum of minimum lease payments over the lease term and the estimated residual value, less unearned interest income. Interest income is accrued as earned over the term of the lease based on the net investment in leases. Fees incurred to originate the lease are deferred and recognized as an adjustment of the yield on the lease.
FHN has elected to exclude accrued interest receivable from the amortized cost basis on its held-for-investment loan portfolio. FHN has also elected to not measure an allowance for credit losses on AIR for loans held for investment based on its policy to write off uncollectible interest in a timely manner, which occurs when a loan is placed on nonaccrual status. Such write-offs are recognized as a reduction of interest income. AIR for held-for-investment loans is included within other assets in the Consolidated Balance Sheets.
FHN has continued to accrue interest on loans for which payment deferrals have been extended to borrowers affected by the COVID-19 pandemic. Deferrals are typically made in increments of three or six months. Cumulative deferrals of six months or longer are beyond FHN's normal write-off practices for accrued interest. Therefore, these interest deferrals do not qualify for FHN's election to not recognize a credit loss allowance for accrued interest. Accordingly, FHN has estimated credit losses for COVID-19 interest deferrals which is included within AIR in other assets in the Consolidated Balance Sheets.
Nonaccrual and Past Due Loans
Generally, loans are placed on nonaccrual status if it becomes evident that full collection of principal and interest is at risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN continues to receive payments, but there are other borrower-specific issues. Consumer loans are generally placed into nonaccrual status no later than 90 days past due.
The accrual status policy for commercial TDRs follows the same internal policies and procedures as other commercial portfolio loans.
Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower (“discharged bankruptcies”) are placed on nonaccrual and are reported as TDRs. They are not returned to accrual status even if current and performing in the future.
Current second lien residential real estate loans that are junior to first liens are placed on nonaccrual status if in bankruptcy.
Consumer real estate (HELOC and residential real estate installment loans), if not already on nonaccrual per above situations, are placed on nonaccrual if the loan is 30 or more days delinquent at the time of modification and is also determined to be a TDR.

When commercial and consumer loans within each portfolio segment and class are placed on nonaccrual status, accrued but uncollected interest is reversed and charged against interest income. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual loans are normally applied to outstanding principal first. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.
Generally, commercial and consumer loans within each portfolio segment and class that have been placed on nonaccrual status can be returned to accrual status if all principal and interest is current and FHN expects full repayment of the remaining contractual principal and interest. This typically requires that a borrower make payments in accordance with the contractual terms for a sustained period of time (generally for a minimum of six months) before being returned to accrual status. For TDRs, FHN may also consider a borrower’s sustained historical repayment performance for a reasonable time prior to the restructuring in assessing whether the borrower can meet the restructured terms, as it may indicate whether the borrower is capable of servicing the level of debt under the modified terms.
Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower are not returned to accrual status. For current second liens that have been placed on nonaccrual because the first lien is 90 or more days past due or is a TDR or bankruptcy, the second lien may be returned to accrual upon pay-off or cure of the first lien.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Charge-offs
For all commercial and consumer loan portfolio segments, all losses of principal are charged to the ALLL in the period in which the loan is deemed to be uncollectible.
For consumer loans, the timing of a full or partial charge-off generally depends on the loan type and delinquency status. Generally, for the consumer real estate segment, a loan will be either partially or fully charged-off when it becomes 180 days past due. At this time, if the collateral value does not support foreclosure, balances are fully charged-off and other avenues of recovery are pursued. If the collateral value supports foreclosure, the loan is charged-down to net realizable value (collateral value less estimated costs to sell) and is placed on nonaccrual status. For residential real estate loans discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower, the fair value of the collateral position is assessed at the time FHN is made aware of the discharge and the loan is charged down to the net realizable value (collateral value less estimated costs to sell). Within the credit card and other portfolio segment, credit cards and installment loans secured by automobiles are normally charged-off upon reaching 180 days past due while other non-real estate consumer loans are charged-off upon reaching 120 days past due.
For acquired PCD loans where all or a portion of the loan balance had been charged off prior to acquisition, and for which active collection efforts are still underway, the ALLL recorded at acquisition is immediately charged off if required by FHN’s existing charge off policy. Additionally, FHN is required to consider its existing policies in determining whether to charge off any financial assets, regardless of whether a charge-off was recorded by the predecessor company. The initial ALLL recognized on PCD assets includes the gross-up of the loan balance reduced by immediate charge-offs for loans previously charged off by the predecessor company or which meet FHN’s charge-off policy on the date of acquisition. Charge-offs against the allowance related to such acquired PCD loans do not result in an income statement impact.
Purchased Credit-Deteriorated Loans
At the time of acquisition FHN evaluates all acquired loans to determine if they have experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans can be identified on either an 1) individual or 2) pooled basis when the loans share similar risk characteristics. FHN evaluates various absolute factors to assist in the identification of PCD loans, including criteria such as, existing PCD status, risk rating of special mention or lower, nonaccrual or impaired status, identification of prior TDRs, and delinquency status. FHN also utilizes relative factors to identify PCD loans such as commercial loan grade migration, expansion of borrower credit spreads, declines in external risk ratings and changes in consumer loan characteristics (e.g., FICO
decline or LTV increase). In addition, factors reflective of broad economic considerations are also considered in identifying PCD loans. These include industry, collateral type, and geographic location for the borrower’s operations. Internal factors for origination of new loans that are similar to the acquired loans are also evaluated to assess loans for PCD status, including increases in required yields, necessity of borrowers’ providing additional collateral and/or guarantees and changes in acceptable loan duration. Other indicators may also be used to evaluate loans for PCD status depending on borrower-specific communications and actions, such public statements, initiation of loan modification discussions and obtaining emergency funding from alternate sources.
Upon acquisition, the expected credit losses are allocated to the purchase price of individual PCD loans to determine each individual asset's amortized cost basis, typically resulting in a reduction of the discount that is accreted prospectively to interest income. At the acquisition date and prospectively, only the unpaid principal balance is incorporated within the estimation of expected credit losses for PCD loans. Otherwise, the process for estimation of expected credit losses is consistent with that discussed below. As discussed below FHN applies undiscounted cash flow methodologies for the estimation of expected credit losses, which results in the calculated amount of credit losses at acquisition that is added to the amortized cost basis of the related PCD loans to exceed the discounted value of estimated credit losses included in the loan valuation.
For PCD loans where all or a portion of the loan balance has been previously written-off, or would be subject to write-off under FHN’s charge-off policy, the initial ALLL included as part of the grossed-up loan balance at acquisition was immediately written-off, resulting in a zero period-end allowance balance and no impact on the ALLL rollforward.
Allowance for Credit Losses
The nature of the process by which FHN determines the appropriate ACL requires the exercise of considerable judgment. See Note 5 - Allowance for Credit Losses for a discussion of FHN’s ACL methodology and a description of the models utilized in the estimation process for the commercial and consumer loan portfolios.
Future adjustments to the ACL may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates or, if required by regulators, based upon information at the time of their examinations or upon future regulatory guidance. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
Management's estimate of expected credit losses in the loan and lease portfolio is recorded in the ALLL and the


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reserve for unfunded lending commitments, collectively the ACL. The ACL is maintained at a level that management determines is sufficient to absorb current expected credit losses in the loan and lease portfolio and unfunded lending commitments. Management uses analytical models to estimate expected credit losses in the loan and lease portfolio and unfunded lending commitments as of the balance sheet date. The models are carefully reviewed to identify trends that may not be captured in the modeled loss estimates. Management uses qualitative adjustments for those items not reflected in the modeled loss information such as recent changes from the macroeconomic forecasts utilized in model calculations, results of additional stressed modeling scenarios, observed and/or expected changes affecting borrowers in specific industries or geographic areas, exposure to large lending relationships and expected recoveries of prior charge offs. Qualitative adjustments are also used to accommodate for the imprecision of certain assumptions and uncertainties inherent in the model calculations as well as to align certain differences in models used by acquired loan portfolios to the methodologies described herein. Loans accounted for at elected fair value are excluded from CECL measurements.
The ALLL is increased by the provision for loan and lease losses and is decreased by loan charge-offs. The ALLL is determined in accordance with ASC 326-20 "Financial Instruments - Credit Losses". ASC 326-20 was adopted on January 1, 2020 and for periods prior to that was determined in accordance with ASC 450-20-50 "Contingencies - Accruals for Loss Contingencies" and was composed of reserves for commercial loans evaluated based on pools of credit-graded loans and reserves for pools of smaller-balance homogeneous consumer and commercial loans. The reserve factors applied to these pools were an estimate of probably incurred losses based on management's evaluation of historical net losses from loans with similar characteristics. Additionally, the ALLL included specific reserves established in accordance with ASC 310-10-35 for loans determined by management to be individually impaired as well as reserves associated with purchased credit impaired loans. Management used analytical models to estimate probable incurred losses in the loan portfolio as of the balance sheet date. The models, which were primarily driven by historical losses, were carefully reviewed to identify trends that may not have been captured in the historical loss factors used in the models. Management used qualitative adjustments for those items not yet captured in the models like then-current events, recent trends in the portfolio, current underwriting guidelines, and local and macroeconomic trends, among other things.
Subsequent to December 31, 2019, credit loss estimation is based on the amortized cost of loans, which includes the following:
1.Unpaid principal balance for originated assets or acquisition price for purchased assets
2.Accrued interest (see elections discussed previously)
3.Accretion or amortization of premium, discount, and net deferred fees or costs
4.Collection of cash
5.Charge-offs
Premiums, discounts and net deferred origination costs/fees affect the calculated amount of expected credit losses but they are not considered when determining the amount of expected credit losses that are recorded.
Under CECL, a loan must be pooled when it shares similar risk characteristics with other loans. Loans that do not share similar risk characteristics are evaluated individually. Expected credit loss is estimated for the remaining life of loan(s), which is limited to the remaining contractual term(s), adjusted for prepayment estimates, which are included as separate inputs into modeled loss estimates. Renewals and extensions are not anticipated unless they are included in existing loan documentation and are not unconditionally cancellable by the lender. However, losses are estimated over the estimated remaining life of reasonably expected TDRs which can extend beyond the current remaining contractual term.
Management has developed multiple current expected credit losses models which segment the loan and lease portfolio by borrower type and loan or lease type to estimate expected lifetime expected credit losses for loans and leases that share similar risk characteristics. Estimates of expected credit losses incorporate consideration of available information that is relevant to assessing the collectability of future cash flows. This includes internal and external information relating to past events, current conditions and reasonable and supportable forecasts of future conditions. FHN utilizes internal and external historical loss information, as applicable, for all available historical periods as the initial point for estimating expected credit losses. Given the duration of historical information available, FHN considers its internal loss history to fully incorporate the effects of prior credit cycles. The historical loss information may be adjusted in situations where current loan characteristics (e.g., underwriting criteria) differ from those in existence at the time the historical losses occurred. Historical loss information is also adjusted for differences in economic conditions, macroeconomic forecasts and other factors management considers relevant over a period extending beyond the measurement date which is considered reasonable and supportable.
FHN generally measures expected credit losses using undiscounted cash flow methodologies. Credit enhancements (e.g., guarantors) that are not freestanding are considered in the estimation of uncollectible cash


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flows. Estimation of expected credit losses for loan agreements involving collateral maintenance provisions include consideration of the value of the collateral and replenishment requirements, with the maximum loss limited to the difference between the amortized cost of the loan and the fair value of the collateral. Expected credit losses for loans for which foreclosure is probable are measured at the fair value of collateral, less estimated costs to sell when disposition through sale is anticipated. Additionally, for borrowers experiencing financial difficulty certain loans are valued at the fair value of collateral when repayment is expected to be provided substantially through the operation of the collateral. The fair value of the collateral is reduced for estimated costs to sell when repayment is expected through sale of the collateral. Expected credit losses for TDRs are measured in accordance with ASC 310-40, which generally requires a discounted cash flow methodology, whereby the loans are measured based on the present value of expected future payments discounted at the loan’s original effective interest rate.
Expected recoveries of previously charged-off amounts are also included as a qualitative adjustment in the estimation of expected credit losses, which reduces the amount of the allowance recognized. Estimates of recoveries on previously charged-off assets included in the allowance for loan losses do not exceed the aggregate of amounts previously written off and expected to be written off for an individual loan or pool.
Since CECL requires the estimation of credit losses for the entire expected life of loans, loss estimates are highly sensitive to changes in macroeconomic forecasts, especially when those forecasts change dramatically in short time periods. Additionally, under CECL credit loss estimates are more likely to increase rapidly in periods of loan growth.
Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable by FHN. The measurement of expected credit losses for unfunded commitments mirrors that of loans with the additional estimate of future draw rates (timing and amount).The liability for credit losses inherent in lending-related commitments, such as letters of credit and unfunded loan commitments, is included in Other liabilities on the Consolidated Balance Sheets and established through a charge to the provision for credit losses.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Premises and equipment held for sale are generally valued at appraised values which reference recent disposition
values for similar property types but also consider marketability discounts for vacant properties. The valuations of premises and equipment held for sale are reduced by estimated costs to sell. Impairments, and any subsequent recoveries, are recorded in noninterest expense. Gains and losses on dispositions are reflected in noninterest income and expense, respectively.
Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the lease periods or the estimated useful lives using the straight-line method. Useful lives utilized in determining depreciation for furniture, fixtures and equipment and for buildings are three years to fifteen years and seven years to forty-five years, respectively.
Other Real Estate Owned
Real estate acquired by foreclosure or other real estate-owned consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. At the time acquired, and in conjunction with the transfer from loans to OREO, there is a charge-off against the ALLL if the estimated fair value less costs to sell is less than the loan’s cost basis. Subsequent declines in fair value and gains or losses on dispositions, if any, are charged to other expense on the Consolidated Statements of Income.
Required developmental costs associated with acquired property under construction are capitalized and included in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-downs are charged against current earnings.
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over net assets of acquired businesses less identifiable intangible assets. On an annual basis, or more frequently if necessary, FHN assesses goodwill for impairment. Other intangible assets primarily represent client lists and relationships, acquired contracts, covenants not to compete and premium on purchased deposits, which are amortized over their estimated useful lives. Intangible assets related to acquired deposit bases are primarily amortized over 10 years using an accelerated method. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of amortizing intangibles should be revised. Other intangibles also include smaller amounts of non-amortizing intangibles for title plant and state banking licenses.
Servicing Rights
FHN recognizes the rights to service mortgage and other loans as separate assets, which are recorded in other assets in the Consolidated Balance Sheets, when


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purchased or when servicing is contractually separated from the underlying loans by sale with servicing rights retained. For loan sales with servicing retained, a servicing right, generally an asset, is recorded at fair value at the time of sale for the right to service the loans sold. All servicing rights are identified by class and amortized over the remaining life of the loan with periodic reviews for impairment.
Transfers of Financial Assets
Transfers of financial assets, or portions thereof which meet the definition of a participating interest, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when 1) the assets have been legally isolated from FHN, 2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to FHN, and 3) FHN does not maintain effective control over the transferred assets. If the transfer does not satisfy all three criteria, the transaction is recorded as a secured borrowing. If the transfer is accounted for as a sale, the transferred assets are derecognized from FHN’s balance sheet and a gain or loss on sale is recognized. If the transfer is accounted for as a secured borrowing, the transferred assets remain on FHN’s balance sheet and the proceeds from the transaction are recognized as a liability.
Derivative Financial Instruments
FHN accounts for derivative financial instruments in accordance with ASC 815 which requires recognition of all derivative instruments on the balance sheet as either an asset or liability measured at fair value through adjustments to either accumulated other comprehensive income within shareholders’ equity or current earnings. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on the transaction date. Fair value is determined using available market information and appropriate valuation methodologies. FHN has elected to present its derivative assets and liabilities gross on the Consolidated Balance Sheets. Amounts of collateral posted or received have not been netted with the related derivatives unless the collateral amounts are considered legal settlements of the related derivative positions. See Note 22 - Derivatives for discussion on netting of derivatives.
FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge or cash flow hedge as applicable, or as a free-standing derivative instrument entered into as an economic hedge or to meet clients’ needs. All transactions designated as ASC 815 hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair value or cash flows of the
hedged item. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. For fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of effectiveness is recorded to the same financial statement line item (e.g., interest expense) used to present the earnings effect of the hedged item. For cash flow hedges, the entire fair value change of the hedging instrument that is included in the assessment of hedge effectiveness is initially recorded in other comprehensive income and later recycled into earnings as the hedged transaction(s) affect net income with the income statement effects recorded in the same financial statement line item used to present the earnings effect of the hedged item (e.g., interest income). For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 22 - Derivatives for additional information.
Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.
Leases
At inception, all arrangements are evaluated to determine if they contain a lease, which is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Control is deemed to exist when a lessor has granted and a lessee has received both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period of use.
Lessee
As a lessee, FHN recognizes lease (right-of-use) assets and lease liabilities for all leasing arrangements with lease terms that are greater than one year. The lease asset and lease liability are recognized at the present value of estimated future lease payments, including estimated renewal periods, with the discount rate reflecting a fully-collateralized rate matching the estimated lease term. Renewal options are included in the estimated lease term if they are considered reasonably certain of exercise. Periods covered by termination options are included in the lease term if it is reasonably certain they will not be exercised. Additionally, prepaid or accrued lease payments, lease incentives and initial direct costs related to lease arrangements are recognized within the right-of-use asset. Each lease is classified as a financing or operating lease which depends on the relationship of the lessee’s rights to the economic value of the leased asset.


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For finance leases, interest on the lease liability is recognized separately from amortization of the right-of-use asset in earnings, resulting in higher expense in the earlier portion of the lease term. For operating leases, a single lease cost is calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Substantially all of FHN’s lessee arrangements are classified as operating leases. For leases with a term of 12 months or less, FHN does not to recognize lease assets and lease liabilities and expense is generally recognized on a straight-line basis over the lease term.
Lease assumptions and classification are reassessed upon the occurrence of events that result in changes to the estimated lease term or consideration. Modifications to lease contracts are evaluated to determine 1) if a right to use an additional asset has been obtained, 2) if only the lease term and/or consideration have been revised or 3) if a full or partial termination has occurred. If an additional right-of use-asset has been obtained, the modification is treated as a separate contract and its classification is evaluated as a new lease arrangement. If only the lease term or consideration are changed, the lease liability is revalued with an offset to the lease asset and the lease classification is re-assessed. If a modification results in a full or partial termination of the lease, the lease liability is revalued through earnings along with a proportionate reduction in the value of the related lease asset and subsequent expense recognition is similar to a new lease arrangement.
Lease assets are evaluated for impairment when triggering events occur, such as a change in management intent regarding the continued occupation of the leased space. If a lease asset is impaired, it is written down to the present value of estimated future cash flows and the prospective expense recognition for that lease follows the accelerated expense recognition methodology applicable to finance leases, even if it remains classified as an operating lease.
Sublease arrangements are accounted for consistent with the lessor accounting described below. Sublease arrangements are evaluated to determine if changes to estimates for the primary lease are warranted or if the sublease terms reflect impairment of the related lease asset.
Lease assets are recognized in Other assets and lease liabilities are recognized in Other liabilities in the Consolidated Balance Sheets. Since substantially all of its leasing arrangements relate to real estate, FHN records lease expense, and any related sublease income, within Occupancy expense in the Consolidated Statements of Income.
Lessor
As a lessor, FHN also evaluates its lease arrangements to determine whether a finance lease or an operating lease exists and utilizes the rate implicit in the lease
arrangement as the discount rate to calculate the present value of future cash flows. Depending upon the terms of the individual agreements, finance leases represent either sales-type or direct financing leases, both of which require de-recognition of the asset being leased with offsetting recognition of a lease receivable that is evaluated for impairment similar to loans. Other than equipment lease entered into as part of commercial lease financing arrangements, all of FHN's lessor arrangements are considered operating leases.
Lease income for operating leases is recognized over the life of the lease, generally on a straight line basis. Lease incentives and initial direct costs are capitalized and amortized over the estimated life of the lease. Lease income is not significant for any reporting periods and is classified as a reduction of net occupancy expense in the Consolidated Statements of Income.
Investment Tax Credit
FHN has elected to utilize the deferral method for acquired investments that generate investment tax credits. This includes both solar and historic tax credit investments. Under this approach the investment tax credits are recorded as an offset to the related investment on the balance sheet. Credit amounts are recognized in earnings over the life of the investment within the same income or expense accounts as used for the investment.
Advertising and Public Relations
Advertising and public relations costs are generally expensed as incurred.
Income Taxes
FHN accounts for income taxes using the asset and liability method pursuant to ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, FHN’s deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts and the corresponding tax basis of certain assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.
Additionally, DTAs are subject to a “more likely than not” test to determine whether the full amount of the DTAs should be recognized in the financial statements. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. If the “more likely than not” test is not met, a valuation allowance must be established against the DTA. In the event FHN determines that DTAs are realizable in the future in excess of their net


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recorded amount, FHN would make an adjustment to the valuation allowance, which would reduce income tax expense.
FHN records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority is recognized. FHN's ASC 740 policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties are included within the related tax asset/liability line in the Consolidated Balance Sheet.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files consolidated, combined, or separate returns.
Earnings per Share
Earnings per share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share in net income periods is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding adjusted to include the number of additional common shares that would have been outstanding if the potential dilutive common shares resulting from performance shares and units, restricted shares and units, and options granted under FHN’s equity compensation plans and deferred compensation arrangements had been issued. FHN utilizes the treasury stock method in this calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in periods in which a net loss available to common shareholders exists.
Equity Compensation
FHN accounts for its employee stock-based compensation plans using the grant date fair value of an award to determine the expense to be recognized over the life of the award. Stock options are valued using an option-pricing model, such as Black-Scholes. Restricted and performance shares and share units are valued at the stock price on the grant date. For awards with service vesting criteria, expense is recognized using the straight-line method over the requisite service period (generally the vesting period). Forfeitures are recognized when they occur. For awards vesting based on a performance measure, anticipated performance is projected to
determine the number of awards expected to vest, and the corresponding aggregate expense is adjusted to reflect the elapsed portion of the performance period. If a performance period extends beyond the required service term, total expense is adjusted for changes in estimated achievement through the end of the performance period. Some performance awards include a total shareholder return modifier (“TSR Modifier”) that operates after determination of the performance criteria, affecting only the quantity of awards issued if the minimum performance threshold is attained. The effect of the TSR Modifier is included in the grant date fair value of the related performance awards using a Monte Carlo valuation technique. The fair value of equity awards with cash payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured each reporting period through vesting date. Performance awards with pre-grant date achievement criteria are expensed over the period from the start of the performance period through the end of the service vesting term. Awards are amortized using the nonsubstantive vesting methodology which requires that expense associated with awards having only service vesting criteria that continue vesting after retirement be recognized over a period ending no later than an employee’s retirement eligibility date.
Phantom stock awards are accounted for as liability awards and are remeasured at each reporting period based on changes in their fair value, which is based on changes in common share prices, until the date of cash settlement. Compensation cost for each reporting period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the phantom stock award for each reporting period.
Repurchase and Foreclosure Provision
The repurchase and foreclosure provision is the charge to earnings necessary to maintain the liability at a level that reflects management’s best estimate of losses associated with the repurchase of loans previously transferred in whole loans sales or securitizations, or make whole requests as of the balance sheet date. See Note 17 - Contingencies and Other Disclosures for discussion related to FHN’s obligations to repurchase such loans.
Legal Costs
Generally, legal costs are expensed as incurred.Costs related to equity issuances are netted against capital surplus. Costs related to debt issuances are included in debt issuance costs that are recorded within term borrowings.
Contingency Accruals
Contingent liabilities arise in the ordinary course of business, including those related to lawsuits, arbitration,


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mediation, and other forms of litigation. FHN establishes loss contingency liabilities for matters when loss is both probable and reasonably estimable in accordance with ASC 450-20-50 “Contingencies - Accruals for Loss Contingencies”. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance generally requires a liability to be established at the low end of the range. Expected recoveries from insurance and indemnification arrangements are recognized if they are considered equally as probable and reasonably estimable as the related loss contingency up to the recognized amount of the estimated loss. Gain contingencies and expected recoveries from insurance and indemnification arrangements in excess of the associated recorded estimated losses are generally recognized when received. Recognized recoveries are recorded as offsets to the related expense in the Consolidated Statements of Income. The favorable resolution of a gain contingency generally results in the recognition of other income in the Consolidated Statements of Income. Contingencies assumed in business combinations are evaluated through the end of the one-year post-closing measurement period.  If the acquisition-date fair value of the contingency can be determined during the measurement period, recognition occurs as part of the acquisition-date fair value of the acquired business. If the acquisition-date fair value of the contingency cannot be determined, but loss is considered probable as of the acquisition date and can be reasonably estimated within the measurement period, then the estimated amount is recorded within acquisition accounting. If the requirements for inclusion of the contingency as part of the acquisition are not met, subsequent recognition of the contingency is included in earnings.
Business Combinations
Assets and liabilities acquired in business combinations are generally recognized at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred. Specified items such as net investment in leases as lessor, acquired operating lease assets and liabilities as lessee, employee benefit plans and income-tax related balances are recognized in accordance with accounting guidance that results in measurements that may differ from fair value. FHN may record provisional amounts at the time of acquisition based on available information. The provisional valuation estimates may be adjusted for a period of up to one year (“measurement period”) from the date of acquisition if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Business combinations are included in the financial statements from the respective dates of acquisition. Adjustments recorded during the measurement period are recognized in the current reporting period.
The excess of purchase price over the valuation of specifically identified assets and liabilities is recorded as goodwill. In certain circumstances the net values of assets and liabilities acquired may exceed the purchase price, which is recognized within non-interest income as a purchase accounting gain.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and direct, wholly owned subsidiary of TD-US (“Merger Sub”). Refer to Note 27 – Subsequent Events, beginning on page 212, for additional information regarding the proposed transaction. Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021.
Accounting Changes With Extended Transition Periods
In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides several optional expedients and exceptions to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The provisions of ASU 2020-04 primarily affect 1) contract modifications (e.g., loans, leases, debt, and derivatives) made in anticipation that a reference rate (e.g., LIBOR) will be discontinued and 2) the application of hedge accounting for existing relationships affected by those modifications. The provisions of ASU 2020-04 are effective upon release and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. FHN has identified contracts affected by reference rate reform and developed modification plans for those contracts. FHN has elected to utilize the optional expedients and exceptions provided by ASU 2020-04 for certain contract modifications that have already been implemented. FHN anticipates that it will continue to utilize the expedients and exceptions for future modifications in situations where they mitigate potential accounting outcomes that do not faithfully represent management’s intent or risk management activities, consistent with the purpose of the standard.


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NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
The FASB has voted to approve an extension of the transition window for ASU 2020-04 until December 31, 2024, consistent with key USD LIBOR tenors continuing to be published through June 30, 2023.
In January 2021, the FASB issued ASU 2021-01, "Scope" to expand the scope of ASU 2020-04 to apply to certain contract modifications that were implemented in October 2020 by derivative clearinghouses for the use of Secure Overnight Funding Rate (SOFR) in discounting, margining and price alignment for centrally cleared derivatives, including derivatives utilized in hedging relationships. ASU 2021-01 also applies to derivative contracts affected by the change in discounting convention regardless of whether they are centrally cleared (i.e., bi-lateral contracts can also be modified) and regardless of whether they reference LIBOR. ASU 2021-01 was effective immediately upon issuance with retroactive application permitted. FHN elected to retroactively apply the provisions of ASU 2021-01 because FHN's centrally cleared derivatives were affected by the change in discounting convention and because FHN has other bi-lateral derivative contracts that may be modified to conform to the use of SOFR for discounting. Adoption did not have a significant effect on FHN's reported financial condition or results of operations.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 2—ACQUISITIONS & DIVESTITURES
Note 2—Acquisitions and Divestitures
IBKC Merger of Equals
On July 1, 2020, FHN and IBERIABANK Corporation closed their merger-of-equals transaction. FHN issued approximately 243 million shares of FHN common stock, plus three new series of preferred stock (Series B, Series C, and Series D) in a transaction valued at $2.5 billion. At the time of closing, IBKC operated 319 offices in 12 states, mostly in the southern U.S.
The merger-of-equals transaction was accounted for as a business combination. Accordingly, the assets acquired
and liabilities assumed are generally presented at their fair values as of the merger date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.
The following schedule details the allocation of merger consideration to the valuations of the identifiable tangible and intangible assets acquired and liabilities assumed from IBKC as of July 1, 2020.
Table 8.2.1
MERGER CONSIDERATION ALLOCATIONS
(Dollars in millions)IBERIABANK Corporation
Assets:
Cash and due from banks$395 
Interest-bearing deposits with banks1,683 
Securities available for sale at fair value3,544 
Loans held for sale320 
Loans and leases (a)25,921 
Allowance for loan and lease losses(284)
Other intangible assets240 
Premises and equipment311 
OREO
Other assets1,153 
Total assets acquired$33,292 
Liabilities:
Deposits$28,232 
Short-term borrowings209 
Term borrowings1,200 
Other liabilities618 
Total liabilities assumed$30,259 
Net assets acquired$3,033 
Consideration paid:
Consideration for outstanding common stock$2,243 
Consideration for equity awards28 
Consideration for preferred stock231 
Total consideration paid$2,502 
Purchase accounting gain$(531)
(a)     Includes $1.3 billion of initial net investments in sales-type and direct financing leases.

In relation to the merger-of-equals, FHN recorded a $531 million purchase accounting gain, representing the shortfall of the purchase price under the acquisition accounting value of net assets acquired, net of deferred taxes. The purchase accounting gain is not taxable. The valuation of the IBKC merger-of-equals transaction was final as of June 30, 2021.
On July 17, 2020, First Horizon Bank completed its purchase of 30 branches from Truist Bank. As of December 31, 2020, the valuation of the acquired assets and liabilities assumed from the Truist branches acquisition was final. In relation to the acquisition, FHN recorded $78 million in goodwill, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN's Regional Banking segment (refer to Note 7 -


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NOTE 2—ACQUISITIONS & DIVESTITURES
Goodwill and Other Intangible Assets for additional information). This goodwill was the result of expected synergies, operational efficiencies and other factors.
Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.
Total merger and integration expense recognized for the years ended December 31, 2021 and 2020 are presented in the following table:
Table 8.2.2
MERGER & INTEGRATION EXPENSE
(Dollars in millions)20212020
Personnel expense (a)$56 $66 
Impairment of long-lived assets34 
Legal and professional fees (b)21 39 
Contract employment and outsourcing12 
Advertising and public relations10 — 
Contribution expense (c) 20 
Other expense (d)54 23 
Total$187 $155 
(a)    Primarily comprised of fees for severance and retention.
(b)     Primarily comprised of fees for legal, accounting, and merger consultants.
(c)    Comprised of contribution expense related to the establishment of the Louisiana First Horizon Foundation.
(d)     Consists of operation services, communications and delivery, equipment expense, supplies, travel and entertainment, computer software, occupancy expense (including costs associated with lease exits) and costs of shareholder matters.

In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into the TD Merger Agreement with TD, TD-US, and Merger Sub. Refer to Note
27—Subsequent Events for additional information regarding the proposed transaction. Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 3—INVESTMENT SECURITIES
Note 3—Investment Securities
The following tables summarize FHN’s investment securities as of December 31, 2021 and 2020:
Table 8.3.1a
INVESTMENT SECURITIES AT YE 2021
 December 31, 2021
(Dollars in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities available for sale:
Government agency issued MBS$5,062 $42 $(49)$5,055 
Government agency issued CMO2,296 (47)2,257 
Other U.S. government agencies861 (15)850 
States and municipalities535 11 (1)545 
Total securities available for sale (a)$8,754 $65 $(112)$8,707 
Securities held to maturity:
Government agency issued MBS$509 $— $(5)$504 
Government agency issued CMO203 — (2)201 
Total securities held to maturity$712 $ $(7)$705 
(a)Includes $6.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

Table 8.3.1b
INVESTMENT SECURITIES AT YE 2020
 December 31, 2020
(Dollars in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities available for sale:
U.S. treasuries$613 $— $— $613 
Government agency issued MBS3,722 92 (2)3,812 
Government agency issued CMO2,380 29 (3)2,406 
Other U.S. government agencies672 12 — 684 
Corporate and other debt40 (1)40 
States and municipalities445 15 — 460 
$7,872 $149 $(6)8,015 
AFS securities recorded at fair value through earnings:
SBA interest-only strips (a)32 
Total securities available for sale (b)$8,047 
Securities held to maturity:
Corporate and other debt$10 $— $— $10 
Total securities held to maturity $10 $— $— $10 
(a)SBA interest-only strips were recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information.
(b)Includes $6.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 3—INVESTMENT SECURITIES
The amortized cost and fair value by contractual maturity for the debt securities portfolio as of December 31, 2021 is provided below:
Table 8.3.2
DEBT SECURITIES PORTFOLIO MATURITIES 
 Held to MaturityAvailable for Sale
(Dollars in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Within 1 year$— $— $17 $18 
After 1 year through 5 years— — 149 149 
After 5 years through 10 years— — 351 349 
After 10 years— — 879 879 
Subtotal— — 1,396 1,395 
Government agency issued MBS and CMO (a)712 705 7,358 7,312 
Total$712 $705 $8,754 $8,707 
(a)Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Gross gains on sales of AFS securities for the years ended December 31, 2021, 2020 and 2019 were insignificant. Gross losses on sales of AFS securities were insignificant for the year ended December 31, 2021, $4 million for the year ended 2020, and insignificant for the year ended December 31, 2019. Cash proceeds from the sales of AFS
securities during 2021, 2020 and 2019 were $68 million, $629 million, and $192 million, respectively.
The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of December 31, 2021 and 2020:
Table 8.3.3a
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2021 
 As of December 31, 2021
 Less than 12 months12 months or longerTotal
(Dollars in millions)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Government agency issued MBS$2,973 $(41)$184 $(8)$3,157 $(49)
Government agency issued CMO1,436 (37)248 (10)1,684 (47)
Other U.S. government agencies459 (11)90 (4)549 (15)
States and municipalities68 (1)— — 68 (1)
Total$4,936 $(90)$522 $(22)$5,458 $(112)
Table 8.3.3b
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2020 
 As of December 31, 2020
 Less than 12 months12 months or longerTotal
(Dollars in millions)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. treasuries$307 $— $— $— $307 $— 
Government agency issued MBS426 (2)— — 426 (2)
Government agency issued CMO586 (3)— — 586 (3)
Other U.S. government agencies80 (1)— — 80 (1)
States and municipalities — — — — 
Total$1,400 $(6)$— $— $1,400 $(6)
FHN has evaluated all AFS debt securities that were in unrealized loss positions in accordance with its accounting
policy for recognition of credit losses. No AFS debt securities were determined to have credit losses because


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NOTE 3—INVESTMENT SECURITIES
the primary cause of the decline in value was attributable to changes in interest rates. Total AIR not included in the fair value or amortized cost basis of AFS debt securities was $23 million and $22 million as of December 31, 2021 and 2020, respectively. Consistent with FHN's review of the related securities, there were no credit-related write downs of AIR for AFS debt securities during the reporting period. Additionally, for AFS debt securities with unrealized losses, FHN does not intend to sell them and it is more-likely-than-not that FHN will not be required to sell them prior to recovery. Therefore, no write downs of these investments to fair value occurred during the reporting period.
For HTM securities, an allowance for credit losses is required to absorb estimated lifetime credit losses. Total AIR not included in the fair value or amortized cost basis of HTM debt securities was $1 million as of December 31, 2021. FHN has assessed the risk of credit loss and has determined that zero allowance for credit losses for HTM
securities was necessary as of December 31, 2021 and 2020. The evaluation of credit risk includes consideration of third-party and government guarantees (both explicit and implicit), senior or subordinated status, credit ratings of the issuer, the effects of interest rate changes since purchase and observable market information such as issuer-specific credit spreads.
The carrying amount of equity investments without a readily determinable fair value was $70 million and $57 million at December 31, 2021 and 2020, respectively. The year-to-date 2021 and 2020 gross amounts of upward and downward valuation adjustments were not significant.
Unrealized gains of $3 million and $7 million were recognized during 2021 and 2020, respectively, for equity investments with readily determinable fair values.




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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
Note 4—Loans and Leases
The loan and lease portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment and is generally determined based on risk characteristics of the loan and FHN’s method for monitoring and assessing credit risk and performance. FHN's loan and lease portfolio segments are commercial and consumer. The classes of loans and leases are: (1) commercial, financial, and industrial, which includes
commercial and industrial loans and leases and loans to mortgage companies, (2) commercial real estate, (3) consumer real estate, which includes both real estate installment and home equity lines of credit, and (4) credit card and other.
The following table provides the amortized cost basis of loans and leases by portfolio segment and class as of December 31, 2021 and 2020, excluding accrued interest of $134 million and $180 million, respectively, which is included in other assets in the Consolidated Balance Sheets.
Table 8.4.1
LOANS AND LEASES BY PORTFOLIO SEGMENT
December 31,
(Dollars in millions)20212020
Commercial:
Commercial and industrial (a) (b)$26,550 $27,700 
Loans to mortgage companies4,518 5,404 
   Total commercial, financial, and industrial31,068 33,104 
Commercial real estate12,109 12,275 
Consumer:
HELOC1,964 2,420 
Real estate installment loans8,808 9,305 
   Total consumer real estate10,772 11,725 
Credit card and other910 1,128 
Loans and leases$54,859 $58,232 
Allowance for loan and lease losses(670)(963)
Net loans and leases$54,189 $57,269 
(a)Includes equipment financing leases of $792 million and $587 million, respectively, as of December 31, 2021 and 2020.
(b) Includes PPP loans fully guaranteed by the SBA of $1.0 billion and $4.1 billion as of December 31, 2021 and 2020.

Restrictions
Loans and leases with carrying values of $36.6 billion and $38.6 billion were pledged as collateral for borrowings at December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, FHN had pledged $6.9 billion and $7.8 billion of commercial loans to secure potential discount window borrowings from the Federal Reserve Bank, which included all of its first and second lien mortgages, HELOCs, and commercial real estate loans to secure potential borrowings from the FHLB-Cincinnati.
Concentrations of Credit Risk
Most of the FHN’s business activity is with clients located in the southern United States. FHN’s lending activity is concentrated in its market areas within those states. As of December 31, 2021, FHN had loans to mortgage companies totaling $4.5 billion and loans to finance and insurance companies total $3.5 billion. As a result, 26% of
the C&I segment is sensitive to impacts on the financial services industry.
Credit Quality Indicators
FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default and the loss given default for each commercial loan using factors specific to various industry, portfolio, or product segments that result in a rank ordering of risk and the assignment of grades PD 1 to PD 16. This credit grading system is intended to identify and measure the credit quality of the loan and lease portfolio by analyzing the migration between grading categories. It is also integral to the estimation methodology utilized in determining the ALLL since an allowance is established for pools of commercial loans based on the credit grade assigned. Each PD grade corresponds to an estimated one-year default probability percentage. PD grades are continually evaluated, but require a formal scorecard annually. As a response to the COVID-19 pandemic, FHN


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NOTE 4—LOANS & LEASES
identified a segment of its commercial portfolio that required a quarterly re-grading process. As borrowers recover, they can be removed from the quarterly re-grading process with credit officer concurrence.
PD 1 through PD 12 are “pass” grades. PD grades 13-16 correspond to the regulatory-defined categories of special mention (13), substandard (14), doubtful (15), and loss (16). Special mention commercial loans and leases have potential weaknesses that, if left uncorrected, may result in deterioration of FHN's credit position at some future date. Substandard commercial loans and leases have well-defined weaknesses and are characterized by the distinct
possibility that FHN will sustain some loss if the deficiencies are not corrected. Doubtful commercial loans and leases have the same weaknesses as substandard loans and leases with the added characteristics that the probability of loss is high and collection of the full amount is improbable.
The following tables provide the amortized cost basis of the commercial loan and lease portfolio by year of origination and credit quality indicator as of December 31, 2021 and 2020:
Table 8.4.2a
C&I PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)20212020201920182017Prior to 2017LMC (a)Revolving
 Loans
Revolving
Loans Converted
to Term Loans (b)
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12) (c)$7,372 $3,576 $3,439 $1,455 $1,193 $2,267 $4,518 $6,386 $13 $30,219 
Special Mention (PD grade 13)25 39 50 48 36 43  100 4 345 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)24 61 67 103 24 48  129 48 504 
Total C&I$7,421 $3,676 $3,556 $1,606 $1,253 $2,358 $4,518 $6,615 $65 $31,068 
(a)LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b)    C&I loans converted from revolving to term in 2021 were not material.
(c)    Includes PPP loans.
Table 8.4.2b
C&I PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)20202019201820172016Prior to 2016LMC (a)Revolving
 Loans
Revolving
Loans Converted
to Term Loans (b)
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12) (c)$9,060 $5,138 $2,628 $1,748 $1,161 $2,145 $5,404 $4,571 $60 $31,915 
Special Mention (PD grade 13)89 93 70 31 37 64 — 127 512 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)182 77 114 50 42 58 — 95 59 677 
Total C&I$9,331 $5,308 $2,812 $1,829 $1,240 $2,267 $5,404 $4,793 $120 $33,104 
(a)LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b)    $50 million of C&I loans were converted from revolving to term in 2020.
(c)    Includes PPP loans.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
Table 8.4.2c
CRE PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)20212020201920182017Prior to 2017Revolving
 Loans
Revolving
Loans Converted
to Term Loans
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12)$3,441 $2,065 $2,514 $929 $691 $1,822 $204 $ $11,666 
Special Mention (PD grade 13)4 26 52 125 20 65   292 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)47  24 3 33 32 12  151 
Total CRE$3,492 $2,091 $2,590 $1,057 $744 $1,919 $216 $ $12,109 
Table 8.4.2d
CRE PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)20202019201820172016Prior to 2016Revolving
 Loans
Revolving
Loans Converted
to Term Loans
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12)$2,477 $3,311 $1,750 $1,140 $946 $1,800 $259 $19 $11,702 
Special Mention (PD grade 13)48 24 117 75 71 54 — — 389 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)30 13 21 42 27 33 18 — 184 
Total CRE$2,555 $3,348 $1,888 $1,257 $1,044 $1,887 $277 $19 $12,275 
The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that most are standard products and are backed by residential real estate. Because of the similarities of consumer loan types, FHN is able to utilize the FICO score, among other attributes, to assess the credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit card and other consumer portfolio.

The following tables reflect the amortized cost basis by year of origination and refreshed FICO scores for
consumer real estate loans as of December 31, 2021 and 2020. Within consumer real estate, classes include HELOC and real estate installment loans. HELOCs are loans which during their draw period are classified as revolving loans. Once the draw period ends and the loan enters its repayment period, the loan converts to a term loan and is classified as revolving loans converted to term loans. All loans classified in the following table as revolving loans or revolving loans converted to term loans are HELOCs. Real estate installment loans are originated as fixed term loans and are classified below in their vintage year. All loans in the following tables classified in a vintage year are real estate installment loans.
Table 8.4.3a
CONSUMER REAL ESTATE PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)20212020201920182017Prior to 2017Revolving loansRevolving Loans converted to term loans (a)Total
FICO score 740 or greater$1,594 $1,156 $825 $473 $394 $1,335 $1,086 $115 $6,978 
FICO score 720-739236 171 109 61 44 209 162 21 1,013 
FICO score 700-719143 112 81 68 45 153 141 23 766 
FICO score 660-699164 131 120 106 44 246 204 44 1,059 
FICO score 620-65942 36 55 23 13 118 66 27 380 
FICO score less than 62026 84 42 32 45 272 42 33 576 
Total$2,205 $1,690 $1,232 $763 $585 $2,333 $1,701 $263 $10,772 
(a)    $43 million of HELOC loans were converted from revolving to term in 2021.


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NOTE 4—LOANS & LEASES
Table 8.4.3b
CONSUMER REAL ESTATE PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)20202019201820172016Prior to 2016Revolving loansRevolving Loans converted to term loans (a)Total
FICO score 740 or greater$1,186 $1,167 $703 $610 $674 $1,719 $1,275 $159 $7,493 
FICO score 720-739157 158 100 77 92 197 186 29 996 
FICO score 700-719122 107 78 76 73 221 177 34 888 
FICO score 660-699130 141 123 75 85 296 264 59 1,173 
FICO score 620-65945 61 37 28 35 127 92 36 461 
FICO score less than 620107 36 52 54 95 261 61 48 714 
Total$1,747 $1,670 $1,093 $920 $1,054 $2,821 $2,055 $365 $11,725 
(a)    $36 million of HELOC loans were converted from revolving to term in 2020.
The following tables reflect the amortized cost basis by year of origination and refreshed FICO scores for credit card and other loans as of December 31, 2021 and 2020.
Table 8.4.4a
CREDIT CARD & OTHER PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)20212020201920182017Prior to 2017Revolving loansRevolving Loans converted to term loansTotal
FICO score 740 or greater$56 $35 $29 $23 $13 $56 $200 $11 $423 
FICO score 720-73914 5 4 3 4 17 46 3 96 
FICO score 700-7198 5 4 4 3 17 42 1 84 
FICO score 660-69925 6 5 6 4 31 98 2 177 
FICO score 620-6594 3 2 4 3 18 22 1 57 
FICO score less than 62024 3 3 4 4 16 18 1 73 
Total$131 $57 $47 $44 $31 $155 $426 $19 $910 
(a) $9 million of other consumer loans were converted from revolving to term in 2021.
Table 8.4.4b
CREDIT CARD & OTHER PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)20202019201820172016Prior to 2016Revolving loansRevolving Loans converted to term loansTotal
FICO score 740 or greater$57 $52 $59 $37 $23 $116 $159 $$508 
FICO score 720-73927 91 159 
FICO score 700-71938 37 116 
FICO score 660-69930 12 15 48 46 172 
FICO score 620-65910 24 20 77 
FICO score less than 62014 11 26 20 96 
Total$122 $91 $107 $78 $63 $279 $373 $15 $1,128 
Nonaccrual and Past Due Loans and Leases
Loans and leases are placed on nonaccrual if it becomes evident that full collection of principal and interest is at
risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN


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NOTE 4—LOANS & LEASES
continues to receive payments but there are other borrower-specific issues. Included in nonaccrual are loans for which FHN continues to receive payments including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy.
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. In accordance with revised Interagency Guidance issued in 2020, FHN is not required to designate loans with deferrals granted in response to COVID-19 as past due because of such deferrals. If a
borrower defers payment, this may result in no contractual payments being past due, and as such, loans would not be considered past due during the period of deferral, and as a result, are excluded from loans past due 30-89 days and loans 90+ days past due in the table below. When qualifying COVID-19 deferral periods end, the related loans are subject to past due reporting.
The following tables reflect accruing and non-accruing loans and leases by class on December 31, 2021 and 2020:
Table 8.4.5a
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2021
December 31, 2021
 AccruingNon-Accruing 
(Dollars in millions)Current30-89
Days
Past Due
90+
Days
Past Due
Total
Accruing
Current30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and industrial:
C&I (a) $26,367 $53 $5 $26,425 $97 $1 $27 $125 $26,550 
Loans to mortgage companies4,518   4,518     4,518 
Total commercial, financial, and industrial30,885 53 5 30,943 97 1 27 125 31,068 
Commercial real estate:
CRE (b)12,087 13  12,100 6 1 2 9 12,109 
Consumer real estate:
HELOC (c)1,906 7 6 1,919 34 2 9 45 1,964 
Real estate installment loans (d)8,658 30 27 8,715 44 3 46 93 8,808 
Total consumer real estate10,564 37 33 10,634 78 5 55 138 10,772 
Credit card and other:
Credit card292 2 2 296     296 
Other608 3  611 1  2 3 614 
Total credit card and other900 5 2 907 1  2 3 910 
Total loans and leases$54,436 $108 $40 $54,584 $182 $7 $86 $275 $54,859 
(a)    $99 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b)    $5 million of CRE loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(c)    $7 million of HELOC loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(d)    $50 million of real estate installment loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
Table 8.4.5b
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2020
December 31, 2020
 AccruingNon-Accruing 
(Dollars in millions)Current30-89
Days
Past Due
90+
Days
Past Due
Total
Accruing
Current30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and industrial:
C&I (a)$27,541 $15 $— $27,556 $88 $12 $44 $144 $27,700 
Loans to mortgage companies5,404 — — 5,404 — — — — 5,404 
Total commercial, financial, and industrial32,945 15 — 32,960 88 12 44 144 33,104 
Commercial real estate:
CRE (b)12,194 23 — 12,217 10 42 58 12,275 
Consumer real estate:
HELOC2,336 13 11 2,360 43 14 60 2,420 
Real estate installment loans9,138 40 9,183 63 50 122 9,305 
Total consumer real estate11,474 53 16 11,543 106 12 64 182 11,725 
Credit card and other:
Credit card279 283 — — — — 283 
Other838 — 844 — 845 
Total credit card and other1,117 1,127 — 1,128 
Total loans and leases$57,730 $100 $17 $57,847 $205 $66 $115 $386 $58,232 
(a)    $101 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.

Collateral-Dependent Loans
Collateral-dependent loans are defined as loans for which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty. At a minimum, the estimated value of the collateral for each loan equals the current book value.
As of December 31, 2021 and 2020, FHN had commercial loans with amortized cost of approximately $120 million and $167 million, respectively, that were based on the value of underlying collateral. Collateral-dependent C&I and CRE loans totaled $115 million and $5 million, respectively, at December 31, 2021. The collateral for these loans generally consists of business assets including land, buildings, equipment and financial assets. During the years ended December 31, 2021 and 2020, FHN recognized total charge-offs of approximately $26 million and $36 million, respectively, on these loans related to reductions in estimated collateral values.
Consumer HELOC and installment loans with amortized cost based on the value of underlying real estate collateral were approximately $7 million and $20 million, respectively, as of December 31, 2021, and $9 million and $26 million, respectively, as of December 31, 2020. Charge-offs on collateral-dependent consumer loans were $1 million during the year ended December 31, 2021, and
were not significant during the year ended December 31, 2020.
Troubled Debt Restructurings
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately.
A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience)


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR. In accordance with regulatory guidance, loans were not accounted for as TDRs and have been excluded from the disclosures below. For loan modifications that were made during the years ended December 31, 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised Interagency Guidance, FHN has excluded these modifications from consideration as TDRs, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies for further discussion regarding TDRs and loan modifications.
For all classes within the commercial portfolio segment, TDRs are typically modified through forbearance agreements (generally 6 to 12 months). Forbearance agreements could include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
FHN’s proprietary modification programs for consumer loans are generally structured using parameters of U.S. government-sponsored programs such as the former Home Affordable Modification Program. Within the HELOC and real estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2% per year until the original
interest rate prior to modification is achieved. Mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1% every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans.
Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, clients are granted a rate reduction to 0% and term extensions for up to 5 years to pay off the remaining balance.
Despite the absence of a loan modification, the discharge of personal liability through bankruptcy proceedings is considered a concession. As a result, FHN classifies all non-reaffirmed residential real estate loans discharged in Chapter 7 bankruptcy as nonaccruing TDRs.
On December 31, 2021 and 2020, FHN had $206 million and $307 million of portfolio loans classified as TDRs, respectively. Additionally, $35 million and $42 million of loans held for sale as of December 31, 2021 and 2020, respectively, were classified as TDRs.
The following table presents the end of period balance for loans modified in a TDR during the years ended December 31, 2021 and 2020:
Table 8.4.6
LOANS MODIFIED IN A TDR
 20212020
(Dollars in millions)NumberPre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
NumberPre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
C&I32 $37 $34 112 $195 $188 
CRE1 12 10 19 15 15 
HELOC25 3 3 64 
Real estate installment loans87 14 14 117 20 19 
Credit card and other51   56 
Total TDRs196 $66 $61 368 $236 $228 
The following table presents TDRs which re-defaulted during 2021 and 2020, and as to which the modification occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
Table 8.4.7
LOANS MODIFIED IN A TDR THAT RE-DEFAULTED
 20212020
(Dollars in millions)NumberRecorded
Investment
NumberRecorded
Investment
C&I18 $5 $
CRE6 19 — — 
HELOC1  — 
Real estate installment loans9 5 18 
Credit card and other4  24 — 
Total TDRs38 $29 59 $
Note 5—Allowance for Credit Losses
Management's estimate of expected credit losses in the loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments, collectively the ACL. See Note 1 - Significant Accounting Policies for further discussion of FHN's ACL methodology.
The ACL is maintained at a level management believes to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolio and unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments considering a number of relevant underling factors, including key assumptions and evaluation of quantitative and qualitative information.
The expected loan losses are the product of multiplying FHN’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure as default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. FHN uses models or assumptions to develop the expected loss forecasts, which incorporate multiple macroeconomic forecasts over a four year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation period, for the remaining estimated life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and prepayment models, FHN segments the portfolio into pools, generally incorporating loan grades for commercial loans. As there can be no certainty that actual economic performance will precisely follow any specific macroeconomic forecast, FHN uses qualitative adjustments to adjust historical loss information in situations where current loan characteristics differ from those in the historical loss information and for differences in economic conditions and other factors.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk
characteristics with the collective group. As described in Note 4 - Loans and Leases, loans are grouped generally by product type and significant loan portfolios are assessed for credit losses using analytical or statistical models. The quantitative evaluation of the adequacy of the ACL utilizes a weighting approach for multiple economic forecast scenarios as its foundation, and is primarily based on analytical models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. The ACL may also be affected by a variety of qualitative factors that FHN considers to reflect current judgment of various events and risks that are not measured in the quantitative calculations.
In accordance with its accounting policy elections, FHN does not recognize a separate allowance for expected credit losses for AIR and records reversals of AIR as reductions of interest income. FHN reverses previously accrued but uncollected interest when an asset is placed on nonaccrual status. As of December 31, 2021 and 2020, FHN recognized approximately $1 million in allowance for expected credit losses on COVID-19 deferrals that do not qualify for the election which is not reflected in the table below. AIR and the related allowance for expected credit losses is included as a component of other assets. The total amount of interest reversals from loans placed on nonaccrual status and the amount of income recognized on nonaccrual loans during the year ended December 31, 2021 were not material.
Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable. The measurement of expected credit losses for unfunded commitments mirrors that of loans and leases with the additional estimate of future draw rates (timing and amount).
The decrease in the ACL as of December 31, 2021 as compared to December 31, 2020 reflects an improvement in the macroeconomic outlook, positive grade migration, and lower loan balances, which was offset slightly by higher C&I loan balances excluding PPP loans.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 5—ALLOWANCE FOR CREDIT LOSSES
In developing credit loss estimates for its loan and lease portfolios, FHN utilized multiple Moody’s forecast scenarios for its macroeconomic inputs. Each scenario included assumptions around the COVID-19 pandemic and its impact on various sections of the economy. The heaviest weight was placed on the baseline forecast, which assumed positive real GDP growth over the forecast horizon and return to full employment by year-end 2022.
During the years ended December 31, 2021 and 2020, FHN also considered stressed loan portfolios or industries that are most exposed to the effects of the COVID-19
pandemic and added qualitative adjustments, where needed, to account for the risks not captured in modeled results. Management also made qualitative adjustments to reflect estimated recoveries based on a review of prior charge off and recovery levels, for default risk associated with large balances with individual borrowers, for estimated loss amounts not reflected in historical factors due to specific portfolio risk, and for instances where limited data for acquired loans is considered to affect modeled results.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 5—ALLOWANCE FOR CREDIT LOSSES
The following table provides a rollforward of the allowance for loan and lease losses and the reserve for unfunded lending commitments by portfolio type for December 31, 2021, 2020 and 2019:
Table 8.5.1
ROLLFORWARD OF ALLL & RESERVE FOR UNFUNDED LENDING COMMITMENTS
(Dollars in millions)Commercial, Financial, and Industrial (a)Commercial
Real Estate
Consumer
Real Estate
Credit Card
and Other
Total
Allowance for loan and lease losses:
Balance as of January 1, 2021$453 $242 $242 $26 $963 
Charge-offs (34)(5)(5)(15)(59)
Recoveries21 27 57 
Provision for loan and lease losses (106)(88)(101)(291)
Balance as of December 31, 2021334 154 163 19 670 
Reserve for remaining unfunded commitments:
Balance as of January 1, 202165 10 10 — 85 
Provision for unfunded lending commitments(19)(2)— (19)
Balance as of December 31, 202146 12 8  66 
Allowance for credit losses as of December 31, 2021$380 $166 $171 $19 $736 
Allowance for loan and lease losses:
Balance as of January 1, 2020$123 $36 $28 $13 $200 
Adoption of ASU 2016-1319 (7)93 107 
Balance as of January 1, 2020, as adjusted142 29 121 15 307 
Charge-offs (b)(129)(5)(8)(14)(156)
Recoveries 18 36 
Initial allowance on loans purchased with credit deterioration (b)138 100 44 287 
Provision for loan and lease losses (c)293 114 67 15 489 
Balance as of December 31, 2020453 242 242 26 963 
Reserve for remaining unfunded commitments:
Balance as of January 1, 2020— — 
Adoption of ASU 2016-1317 — 24 
Balance as of January 1, 2020, as adjusted21 — 30 
Initial reserve on loans acquired12 26 — 41 
Provision for unfunded lending commitments32 (19)— 14 
Balance as of December 31, 202065 10 10 — 85 
Allowance for credit losses as of December 31, 2020$518 $252 $252 $26 $1,048 
Allowance for loan losses
Balance as of January 1, 2019$99 $31 $37 $13 $180 
Charge-offs(34)(1)(8)(16)(59)
Recoveries 20 32 
Provision for loan losses 51 (21)12 47 
Balance as of December 31, 2019123 36 28 13 200 
Reserve for remaining unfunded commitments:
Balance as of January 1, 2019— — 
Provision for unfunded lending commitments— (1)— — (1)
Balance as of December 31, 2019— — 
Allowance for credit losses as of December 31, 2019$127 $38 $28 $13 $206 
(a)    C&I loans as of December 31, 2021 and 2020 include $1.0 billion and $4.1 billion in PPP loans which due to the government guarantee and forgiveness provisions are considered to have no credit risk and therefore have no allowance for loan and lease losses.
(b)    The year ended December 31, 2020 excludes day 1 charge-offs and the related initial allowance on PCD loans is net of these amounts. Under ASC 326, the initial ALLL recognized on PCD assets included an additional $237 million for charged-off loans that had been written off prior to acquisition (whether full or partial) or which met FHN's charge-off policy at the time of acquisition. After charging these amounts off immediately upon acquisition, the net impact was $287 million of additional ALLL for PCD loans.
(c)    Provision for loan and lease losses for the year ended December 31, 2020 includes $147 million recognized on non-PCD loans from the IBKC merger and Truist branch acquisition.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 6—PREMISES, EQUIPMENT, & LEASES
Note 6—Premises, Equipment, and Leases
Premises and equipment were comprised of the following at December 31, 2021 and 2020:
Table 8.6.1
PREMISES & EQUIPMENT
(Dollars in millions)December 31, 2021December 31, 2020
Land$163 $182 
Buildings543 594 
Leasehold improvements74 73 
Furniture, fixtures, and equipment276 269 
Fixed assets held for sale (a)16 18 
Total premises and equipment1,072 1,136 
Less accumulated depreciation and amortization(407)(377)
Premises and equipment, net$665 $759 
(a) Primarily comprised of land and buildings.

In 2021 and 2020, FHN recognized $37 million and $12 million, respectively, of fixed asset impairments and lease abandonment charges related to branch closures which were included in other expense on the Consolidated Statements of Income. In 2021, FHN had $6 million of net gains related to the sales of bank branches which was included in other income on the Consolidated Statements of Income. Similar net gains in 2020 were not material.
First Horizon as Lessee
FHN has operating, financing, and short-term leases for branch locations, corporate offices and certain equipment. Substantially all of these leases are classified as operating leases.
The following table provides details of the classification of FHN's right-of-use assets and lease liabilities included in the Consolidated Balance Sheets.
Table 8.6.2
RIGHT-OF-USE ASSETS & LEASE LIABILITIES
(Dollars in millions)December 31, 2021December 31, 2020
Lease right-of-use assets:Classification
Operating lease right-of-use assetsOther assets$345 $367 
Finance lease right-of-use assetsOther assets3 
Total lease right-of-use assets$348 $371 
Lease liabilities:
Operating lease liabilitiesOther liabilities$382 $407 
Finance lease liabilitiesOther liabilities4 
Total lease liabilities$386 $411 
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The following table details the weighted average remaining lease term and discount rate for FHN's operating and finance leases as of December 31, 2021 and 2020.

Table 8.6.3
REMAINING LEASE TERMS
& DISCOUNT RATES
December 31, 2021December 31, 2020
Weighted Average Remaining Lease Terms
Operating leases12.37 years12.49 years
Finance leases10.61 years11.45 years
Weighted Average Discount Rate
Operating leases2.35 %2.39 %
Finance leases2.85 %3.05 %
The following table provides a detail of the components of lease expense and other lease information for the years ended December 31, 2021, 2020, and 2019:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 6—PREMISES, EQUIPMENT, & LEASES
Table 8.6.4
LEASE EXPENSE &
OTHER INFORMATION
(Dollars in millions)202120202019
Lease cost
Operating lease cost$48 $39 $25 
Sublease income(1)(1)— 
Total lease cost$47 $38 $25 
Other information
(Gain) loss on right-of-use asset impairment - operating leases$3 $$
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases53 41 23 
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases19 216 48 
Finance leases 
The following table provides a detail of the maturities of FHN's operating and finance lease liabilities as of December 31, 2021:
Table 8.6.5
LEASE LIABILITY MATURITIES
(Dollars in millions)December 31, 2021
2022$49 
202345 
202440 
202539 
202637 
2027 and thereafter238 
Total lease payments448 
Less lease liability interest(62)
Total lease liability$386 
FHN had no aggregate undiscounted contractual obligations for lease arrangements that have not commenced as of December 31, 2021.

First Horizon as Lessor
As a lessor, FHN engages in the leasing of equipment to commercial clients primarily through direct financing and sales-type leases. Direct financing and sales-type leases are similar to other forms of installment lending in that lessors generally do not retain benefits and risks incidental to ownership of the property subject to leases. Such
arrangements are essentially financing transactions that permit lessees to acquire and use property. As lessor, the sum of all minimum lease payments over the lease term and the estimated residual value, less unearned interest income, is recorded as the net investment in the lease on the commencement date and is included in loans and leases in the Consolidated Balance Sheets. Interest income is accrued as earned over the term of the lease based on the net investment in leases. Fees incurred to originate the lease are deferred on the commencement date and recognized as an adjustment of the yield on the lease.
FHN’s portfolio of direct financing and sales-type leases contains terms of 1 to 23 years, some of which contain options to extend the lease for various periods of time and/or to purchase the equipment subject to the lease at various points in time. These direct financing and sales-type leases typically include a payment structure set at lease inception and do not provide any additional services. Expenses associated with the leased equipment, such as maintenance and insurance, are paid by the lessee directly to third parties. The lease agreement typically contains an option for the purchase of the leased property by the lessee at the end of the lease term at either the property’s residual value or a specified price. In all cases, FHN expects to sell or re-lease the equipment at the end of the lease term. Due to the nature and structure of FHN’s direct financing and sales-type leases, there is no selling profit or loss on these transactions.
The components of the Company’s net investment in leases as of December 31, 2021 and 2020 were as follows:
Table 8.6.6
LEASE NET INVESTMENTS
(Dollars in millions)December 31, 2021December 31, 2020
Lease receivable$729 $535 
Unearned income(135)(108)
Guaranteed residual97 92 
Unguaranteed residual102 68 
Total net investment$793 $587 
Interest income for direct financing or sales-type leases totaled $26 million and $11 million for the years ended December 31, 2021 and 2020, respectively. There was no profit or loss recognized at the commencement date for direct financing or sales-type leases for the years ended December 31, 2021 and 2020.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 6—PREMISES, EQUIPMENT, & LEASES
Maturities of the Company's lease receivables as of December 31, 2021 were as follows:
Table 8.6.7
LEASE RECEIVABLE MATURITIES
(Dollars in millions)December 31, 2021
2022$136 
2023122 
202496 
202573 
202657 
2027 and thereafter245 
Total future minimum lease payments$729 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 7—GOODWILL & OTHER INTANGIBLE ASSETS
Note 7—Goodwill and Other Intangible Assets
Goodwill
On July 1, 2020, FHN completed its merger-of-equals transaction with IBKC. In connection with the merger, FHN recorded a $531 million purchase accounting gain, based on fair value estimates.
On July 17, 2020, FHN completed its purchase of 30 branches from Truist Bank. In relation to the acquisition, FHN recorded $78 million in goodwill, based on fair value estimates. See Note 2 - Acquisitions and Divestitures for additional information regarding these transactions.
FHN performed the required annual goodwill impairment test as of October 1, 2021. The annual impairment test did not indicate impairment in any of FHN’s reporting units as of the testing date. Following the testing date, management evaluated the events and circumstances that could indicate that goodwill might be impaired and concluded that a subsequent interim test was not necessary.
As further discussed in Note 20 - Business Segment Information, FHN reorganized its management reporting structure during 2020 and, accordingly, its segment reporting structure and goodwill reporting units. In connection with the reorganization, management reallocated goodwill to the new reporting units using a relative fair value approach.
Accounting estimates and assumptions were made about FHN’s future performance and cash flows, as well as other prevailing market factors (e.g., interest rates, economic
trends, etc.) when determining fair value as part of the goodwill impairment test. While management used the best information available to estimate future performance for each reporting unit, future adjustments to management’s projections may be necessary if conditions differ substantially from the assumptions used in making the estimates.
The following is a summary of goodwill by reportable segment included in the Consolidated Balance Sheets as of December 31, 2021:
Table 8.7.1
GOODWILL
(Dollars in millions)Regional
Banking
Specialty
Banking
Total
December 31, 2018$802 $631 $1,433 
Additions— — — 
December 31, 2019$802 $631 $1,433 
Additions78 — 78 
December 31, 2020$880 $631 $1,511 
Additions— — — 
December 31, 2021$880 $631 $1,511 
Other intangible assets
The following table, which excludes fully amortized intangibles, presents other intangible assets included in the Consolidated Balance Sheets:
Table 8.7.2
OTHER INTANGIBLE ASSETS
 December 31, 2021December 31, 2020
(Dollars in millions)Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Core deposit intangibles$371 $(128)$243 $371 $(81)$290 
Client relationships37 (11)26 37 (8)29 
Other (a)41 (12)29 41 (6)35 
Total$449 $(151)$298 $449 $(95)$354 
(a)Includes noncompete covenants and purchased credit card intangible assets. Also includes title plant intangible assets and state banking licenses which are not subject to amortization.

Amortization expense was $56 million, $40 million, and $25 million for the years ended December 31, 2021, 2020 and 2019, respectively. The following table shows the aggregated amortization expense estimated, as of December 31, 2021, for the next five years:  
Table 8.7.3
ESTIMATED AMORTIZATION EXPENSE
(Dollars in millions) 
2022$51 
202348 
202444 
202538 
202633 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 8—MORTGAGE BANKING ACTIVITY
Note 8—Mortgage Banking Activity
On July 1, 2020 as part of the IBKC merger, FHN obtained IBKC mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards established by GSEs that are major investors in U.S. home mortgages, but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis. Gains and losses on these mortgage loans are included in mortgage banking and title income on the Consolidated Statements of Income. Prior to the merger, FHN’s mortgage banking operations were not significant. At December 31, 2021, FHN had approximately $45 million of loans that remained from pre-2009 Mortgage Business operations of legacy First Horizon. Activity related to the pre-2009 mortgage loans was primarily limited to payments and write-offs in 2021 and 2020, with no new originations or loan sales, and only an insignificant amount of repurchases. These loans are excluded from the disclosure below.
The following table summarizes activity relating to residential mortgage loans held for sale for the years ended December 31, 2021 and 2020:
Table 8.8.1
MORTGAGE LOAN ACTIVITY
(Dollars in millions)20212020
Balance at beginning of period$409 $
Acquired 320 
Originations and purchases2,836 2,499 
Sales, net of gains(3,025)(2,405)
Mortgage loans transferred from (to) held for investment30 (9)
Balance at end of period$250 $409 

Mortgage Servicing Rights
Effective with the IBKC merger, FHN made an election to record mortgage servicing rights at the lower of cost or market value and amortize over the remaining servicing life of the loans, with consideration given to prepayment assumptions.
Mortgage servicing rights are included in other assets on the Consolidated Balance Sheets. Mortgage servicing rights had the following carrying values as of the period indicated.
Table 8.8.2
MORTGAGE SERVICING RIGHTS
 December 31, 2021
(Dollars in millions)Gross
 Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
Mortgage servicing rights$39 $(9)$30 
December 31, 2020
(Dollars in millions)Gross
 Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
Mortgage servicing rights$28 $(3)$25 
In addition, there was an insignificant amount of non-mortgage and commercial servicing rights as of December 31, 2021 and 2020. Total mortgage servicing fees included in mortgage banking and title income were $4 million and $2 million for the years ended December 31, 2021 and 2020, respectively.















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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 9—DEPOSITS
Note 9—Deposits
The composition of deposits is presented in the following table:
Table 8.9.1
DEPOSITS
(Dollars in millions)20212020
Savings$26,457 $27,324 
Time deposits3,500 5,070 
Other interest-bearing deposits17,055 15,415 
Total interest-bearing deposits47,012 47,809 
Noninterest-bearing deposits27,883 22,173 
Total deposits$74,895 $69,982 
Time deposits in denominations that exceed the FDIC insurance limit of $250,000 at December 31, 2021 and 2020 were $859 million and $1.4 billion, respectively. Of those deposits, $515 million and $925 million were
uninsured as of December 31, 2021 and 2020, respectively.
Scheduled maturities of time deposits as of December 31, 2021 were as follows:
Table 8.9.2
TIME DEPOSIT MATURITIES
(Dollars in millions) 
2022$3,006 
2023229 
2024115 
202579 
202643 
2027 and after28 
Total$3,500 



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 10—SHORT-TERM BORROWINGS
Note 10—Short-Term Borrowings
A summary of short-term borrowings for the years 2021, 2020 and 2019 is presented in the following table:
Table 8.10.1
SHORT-TERM BORROWINGS
(Dollars in millions)Trading LiabilitiesFederal Funds PurchasedSecurities Sold Under Agreements to RepurchaseOther Short-term Borrowings
2021
Average balance$540 $949 $1,235 $124 
Year-end balance426 775 1,247 102 
Maximum month-end outstanding685 1,037 1,615 146 
Average rate for the year1.11 %0.12 %0.30 %0.09 %
Average rate at year-end1.62 %0.10 %0.11 %0.08 %
2020
Average balance$457 $862 $1,109 $626 
Year-end balance353 845 1,187 166 
Maximum month-end outstanding983 1,487 1,661 4,061 
Average rate for the year1.24 %0.34 %0.50 %0.84 %
Average rate at year-end0.77 %0.10 %0.26 %0.09 %
2019
Average balance$503 $738 $701 $538 
Year-end balance506 548 717 2,253 
Maximum month-end outstanding754 1,282 772 2,276 
Average rate for the year2.48 %2.08 %2.07 %2.10 %
Average rate at year-end2.07 %1.55 %1.72 %2.14 %
Federal funds purchased and securities sold under agreements to repurchase generally have maturities of less than 90 days. Trading liabilities, which represent short positions in securities, are generally held for less than 90 days. Other short-term borrowings have original
maturities of one year or less. On December 31, 2021, fixed income trading securities with a fair value of $33 million were pledged to secure other short-term borrowings.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 11—TERM BORROWINGS
Note 11—Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. The following table presents information pertaining to term borrowings as of December 31, 2021 and 2020:
Table 8.11.1
TERM BORROWINGS
(Dollars in millions)20212020
First Horizon Bank:
Subordinated notes (a)
Maturity date – May 1, 2030 - 5.75%
$447 $447 
Other collateralized borrowings - Maturity date – December 22, 2037
0.50% on December 31, 2021 and 0.52% on December 31, 2020 (b)
87 82 
Other collateralized borrowings - SBA loans (c)6 15 
First Horizon Corporation:
Senior notes
Maturity date – May 26, 2023 - 3.55%
448 447 
Maturity date – May 26, 2025 - 4.00%
349 348 
Junior subordinated debentures (d)
Maturity date - July 31, 2031 - 3.51% on December 31, 2020
 
Maturity date - November 15, 2032 - 3.50% on December 31, 2020
 
Maturity date - March 26, 2033 - 3.40% on December 31, 2020
 
Maturity date - June 17, 2033 - 3.40% on December 31, 2020
 
Maturity date - March 17, 2034 - 3.02% on December 31, 2020
 
Maturity date - September 20, 2034 - 2.25% on December 31, 2020
 
Maturity date - June 28, 2035 - 1.88% on December 31, 2021 and 1.90% on December 31, 2020
3 
Maturity date - December 15, 2035 - 1.57% on December 31, 2021 and 1.59% on December 31, 2020
18 18 
Maturity date - March 15, 2036 - 1.60% on December 31, 2021 and 1.62% on December 31, 2020
9 
Maturity date - March 15, 2036 - 1.74% on December 31, 2021 and 1.76% on December 31, 2020
12 12 
Maturity date - June 30, 2036 - 1.54% on December 31, 2021 and 1.56% on December 31, 2020
27 27 
Maturity date - July 7, 2036 - 1.67% on December 31, 2021 and 1.79% on December 31, 2020
18 18 
Maturity date - October 7, 2036 - 1.88% on December 31, 2020
 
Maturity date - December 30, 2036 - 1.84% on December 31, 2020
 10 
Maturity date - June 15, 2037 - 1.85% on December 31, 2021 and 1.87% on December 31, 2020
52 51 
Maturity date - September 6, 2037 - 1.61% on December 31, 2021 and 1.66% on December 31, 2020
9 
Maturity date - September 15, 2037 - 1.65% on December 31, 2020
 
Maturity date - December 15, 2037 - 2.76% on December 31, 2020
 10 
Maturity date - December 15, 2037 - 2.97% on December 31, 2020
 10 
Maturity date - June 15, 2038 - 3.72% on December 31, 2020
 
Notes payable - New market tax credit investments; 7 to 35 year term, 0.93% to 4.95% on December 31, 2021; 1.27% to 4.95% on December 31, 2020
59 45 
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (e)
Maturity date – March 31, 2031 – 9.50%
46 46 
Total$1,590 $1,670 
(a)Qualifies for Tier 2 capital under the risk-based capital guidelines for First Horizon Bank as well as First Horizon Corporation up to certain limits for minority interest capital instruments.
(b)Secured by trust preferred loans.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 11—TERM BORROWINGS
(c)Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 4 to 25 years. These borrowings had a weighted average interest rate of 4.10% and 3.90% on December 31, 2021 and 2020, respectively.
(d)Acquired in conjunction with the acquisitions of CBF and merger with IBKC. The legacy IBKC junior subordinated debentures were early redeemed in 2021. A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(e)Qualifies for Tier 2 capital under the risk-based capital guidelines for both First Horizon Bank and First Horizon Corporation up to certain limits for minority interest capital instruments.
Annual principal repayment requirements as of December 31, 2021 are as follows:
Table 8.11.2
ANNUAL PRINCIPAL REPAYMENT SCHEDULE
(Dollars in millions) 
2022$— 
2023450 
2024
2025350 
2026 and after807 
In conjunction with its acquisitions, FHN obtained junior subordinated debentures, each of which is held by a wholly-owned trust that has issued trust preferred securities to external investors and loaned the funds to FHN as junior subordinated debt. The book value for each
issuance represents the purchase accounting fair value as of the closing date less accumulated amortization of the associated discount, as applicable. Through various contractual arrangements, FHN assumed a full and unconditional guarantee for each trust’s obligations with respect to the securities. While the maturity dates are typically 30 years from the original issuance date, FHN has the option to redeem each of the junior subordinated debentures at par on any future interest payment date, which would trigger redemption of the related trust preferred securities. During 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debt underlying multiple issuances of trust preferred securities. The redemption resulted in a loss on debt extinguishment of $26 million. A portion of FHN's remaining junior subordinated notes qualifies as Tier 2 capital under the risk-based capital guidelines.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 12—PREFERRED STOCK
Note 12—Preferred Stock
FHN Preferred Stock

The following table presents a summary of FHN's non-cumulative perpetual preferred stock:
Table 8.12.1
FHN PREFERRED STOCK
December 31,
(Dollars in millions)20212020
Issuance DateEarliest Redemption Date (a) Annual Dividend RateDividend PaymentsShares OutstandingLiquidation AmountCarrying AmountCarrying Amount
Series A 1/31/20134/10/20186.200 %Quarterly— $— $ $95 
Series B 7/2/20208/1/20256.625 %(b)Semi-annually8,000 80 77 77 
Series C 7/2/20205/1/20266.600 %(c)Quarterly5,750 58 59 59 
Series D 7/2/20205/1/20246.100 %(d)Semi-annually10,000 100 94 94 
Series E 5/28/202010/10/20256.500 %Quarterly1,500 150 145 145 
Series F5/3/20217/10/20264.700 %Quarterly1,500 150 145 — 
26,750 $538 $520 $470 
(a)    Denotes earliest optional redemption date. Earlier redemption is possible, at FHN's election, if certain regulatory capital events occur.
(b)    Fixed dividend rate will reset on August 1, 2025 to three-month LIBOR plus 4.262%
(c)    Fixed dividend rate will reset on May 1, 2026 to three-month LIBOR plus 4.920%
(d)    Fixed dividend rate will reset on May 1, 2024 to three-month LIBOR plus 3.859%

During 2021, FHN issued $150 million of 4.70% Series F Non-Cumulative Perpetual Preferred Stock (the Series F Preferred Stock). The Series F Preferred Stock is redeemable at FHN's option, in whole or in part, on or after July 10, 2026. Earlier redemption is possible, at FHN's election, if certain regulatory capital events occur. The $145 million carrying value of the Series F Preferred Stock currently qualifies as Tier 1 Capital.
During 2021, FHN redeemed all outstanding shares of Series A Preferred Stock. The difference between the $100 million liquidation preference and the carrying value of the Series A Preferred Stock resulted in a $5 million deemed dividend that was included in EPS for the year ended December 31, 2021.
Subsidiary Preferred Stock
First Horizon Bank has issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. Dividends on the Class A Preferred Stock, if declared, accrue and are payable each quarter, in arrears, at a floating rate equal to the greater of the three month LIBOR plus 0.85% or 3.75% per annum. These securities qualify fully as Tier 1 capital for both First Horizon Bank and FHN. On December 31, 2021 and 2020, $295 million of Class A Preferred Stock was recognized as noncontrolling interest on the Consolidated Balance Sheets.
FT Real Estate Securities Company, Inc. (FTRESC), an indirect subsidiary of FHN, has issued 50 shares of 9.50%
Cumulative Preferred Stock, Class B (Class B Preferred Shares), with a liquidation preference of $1 million per share; of those shares, 47 were issued to nonaffiliates. FTRESC is a real estate investment trust established for the purpose of acquiring, holding, and managing real estate mortgage assets. Dividends on the Class B Preferred Shares are cumulative and are payable semi-annually. At December 31, 2021, the Class B Preferred Shares partially qualified as Tier 2 regulatory capital. For all periods presented, these securities are presented in the Consolidated Balance Sheets as Term borrowings.
The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or there is more than an insubstantial risk that dividends paid with respect to the Class B Preferred Shares will not be fully deductible for tax purposes.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
Note 13—Regulatory Capital and Restrictions
Regulatory Capital
FHN is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on FHN’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FHN must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant to regulatory directives. Capital amounts and classification are also subject to qualitative judgment by the regulators such as capital components, asset risk weightings, and other factors.
Management believes that, as of December 31, 2021, FHN and First Horizon Bank met all capital adequacy requirements to which they were subject. As of December 31, 2021, First Horizon Bank was classified as
well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, an institution must maintain minimum Total Risk-Based, Tier 1 Risk-Based, Common Equity Tier 1 and Tier 1 Leverage ratios as set forth in the following table. Management believes that no events or changes have occurred subsequent to year-end that would change this designation.
Quantitative measures established by regulation to ensure capital adequacy require FHN to maintain minimum ratios as set forth in the following table. FHN and First Horizon Bank are also subject to a 2.5% capital conservation buffer which is an amount above the minimum levels designed to ensure that banks remain well-capitalized, even in adverse economic scenarios.
The actual capital amounts and ratios of FHN and First Horizon Bank are presented in the following table.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
Table 8.13.1
CAPITAL AMOUNTS & RATIOS
(Dollars in millions)First Horizon CorporationFirst Horizon Bank
AmountRatioAmountRatio
On December 31, 2021    
Actual:    
Total Capital$7,918 12.34 %$7,893 12.41 %
Tier 1 Capital7,088 11.04 7,133 11.22 
Common Equity Tier 16,367 9.92 6,838 10.75 
Leverage7,088 8.08 7,133 8.20 
Minimum Requirement for Capital Adequacy Purposes:    
Total Capital5,135 8.00 5,088 8.00 
Tier 1 Capital3,851 6.00 3,816 6.00 
Common Equity Tier 12,888 4.50 2,862 4.50 
Leverage3,507 4.00 3,478 4.00 
Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions:    
Total Capital  6,360 10.00 
Tier 1 Capital  5,088 8.00 
Common Equity Tier 1  4,134 6.50 
Leverage  4,348 5.00 
On December 31, 2020    
Actual:    
Total Capital$7,935 12.57 %$7,827 12.52 
Tier 1 Capital6,782 10.74 6,832 10.93 
Common Equity Tier 16,110 9.68 6,537 10.46 
Leverage6,782 8.24 6,832 8.36 
Minimum Requirement for Capital Adequacy Purposes:    
Total Capital5,051 8.00 5,001 8.00 
Tier 1 Capital3,788 6.00 3,751 6.00 
Common Equity Tier 12,841 4.50 2,813 4.50 
Leverage3,294 4.00 3,268 4.00 
Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions:    
Total Capital  6,251 10.00 
Tier 1 Capital  5,001 8.00 
Common Equity Tier 1  4,063 6.50 
Leverage  4,085 5.00 
Restrictions on cash and due from banks
Under the Federal Reserve Act and Regulation D, First Horizon Bank is required to maintain a certain amount of cash reserves. However, as a result of the COVID-19 pandemic, the Fed announced it has reduced its reserve requirement to zero, and as a result, on December 31, 2021 and 2020, First Horizon Bank was not required to maintain cash reserves after the consideration of $464 million and $397 million in average vault cash respectively.
Restrictions on dividends
Cash dividends are paid by FHN from its assets, which are mainly provided by dividends from its subsidiaries. Certain regulatory restrictions exist regarding the ability of First Horizon Bank to transfer funds to FHN in the form of cash, dividends, loans, or advances. As of December 31, 2021, First Horizon Bank had undivided profits of $2.2 billion, of which a limited amount was available for distribution to FHN as dividends without prior regulatory approval. At any given time, the pertinent portions of those regulatory


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
restrictions allow First Horizon Bank to declare preferred or common dividends without prior regulatory approval in an amount equal to First Horizon Bank's retained net income for the two most recent completed years plus the current year-to-date period. For any period, First Horizon Bank’s "retained net income" generally is equal to First Horizon Bank’s regulatory net income reduced by the preferred and common dividends declared by First Horizon Bank. Applying the dividend restrictions imposed under applicable federal and state rules, First Horizon Bank’s total amount available for dividends was $1.1 billion at January 1, 2022. First Horizon Bank declared and paid common dividends to the parent company in the amount of $770 million in 2021 and $180 million in 2020. During 2021 and 2020, First Horizon Bank declared and paid dividends on its preferred stock according to the payment terms of its issuances as noted in Note 12 - Preferred Stock.
The payment of cash dividends by FHN and First Horizon Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. Furthermore, the Federal Reserve generally requires insured banks and bank holding companies to pay dividends only out of current operating earnings.
Restrictions on intercompany transactions
Under current Federal banking laws, First Horizon Bank may not enter into covered transactions with any affiliate
including the parent company and certain financial subsidiaries in excess of 10% of the bank’s capital stock and surplus, as defined, or $812 million, on December 31, 2021. Covered transactions include a loan or extension of credit to an affiliate, a purchase of or an investment in securities issued by an affiliate, and the acceptance of securities issued by the affiliate as collateral for any loan or extension of credit. The equity investment, including retained earnings, in certain of a bank’s financial subsidiaries is also treated as a covered transaction. On December 31, 2021, the parent company had covered transactions of less than $1 million from First Horizon Bank, and 840 Denning LLC, a parent company subsidiary, had a covered transaction of $2 million. Two of the bank’s financial subsidiaries, FHN Financial Securities Corp. and First Horizon Advisors, Inc., had covered transactions from First Horizon Bank totaling $400 million and $51 million, respectively. In addition, the aggregate amount of covered transactions with all affiliates, as defined, is limited to 20% of the bank’s capital stock and surplus, as defined, or $1.6 billion, on December 31, 2021. First Horizon Bank’s total covered transactions with all affiliates including the parent company on December 31, 2021 were $453 million.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 14—COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Note 14—Components of Other Comprehensive Income (Loss)
The following table provides the changes in accumulated other comprehensive income (loss) by component, net of tax, for the years ended December 31, 2021, 2020, and 2019:
Table 8.14.1
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)Securities AFSCash Flow
Hedges
Pension and
Post-retirement
Plans
Total
Balance as of December 31, 2018$(76)$(12)$(288)$(376)
Net unrealized gains (losses)107 11 126 
Amounts reclassified from AOCI— 11 
Other comprehensive income (loss)107 15 15 137 
Balance as of December 31, 201931 (273)(239)
Net unrealized gains (losses)74 15 92 
Amounts reclassified from AOCI(6)10 
Other comprehensive income (loss)77 13 99 
Balance as of December 31, 2020108 12 (260)(140)
Net unrealized gains (losses)(144)(3)(2)(149)
Amounts reclassified from AOCI— (7)
Other comprehensive income (loss)(144)(10)(148)
Balance as of December 31, 2021$(36)$2 $(254)$(288)
Reclassifications from AOCI, and related tax effects, were as follows:
Table 8.14.2
RECLASSIFICATIONS FROM AOCI
(Dollars in millions) 
Details about AOCI202120202019Affected line item in the statement where net income is presented
Securities AFS:
Realized (gains) losses on securities AFS$ $$— Securities gains (losses), net
Tax expense (benefit) (1)— Income tax expense
 — 
Cash flow hedges:
Realized (gains) losses on cash flow hedges(9)(8)Interest and fees on loans and leases
Tax expense (benefit)2 (1)Income tax expense
(7)(6)
Pension and Postretirement Plans:
Amortization of prior service cost and net actuarial (gain) loss10 13 10 Other expense
Tax expense (benefit)(2)(3)(3)Income tax expense
8 10 
Total reclassification from AOCI$1 $$11 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
Note 15—Income Taxes
The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated Statements of Changes in Equity for the years ended December 31, were as follows:
Table 8.15.1
INCOME TAX EXPENSE
(Dollars in millions)202120202019
Consolidated Statements of Income:   
Income tax expense$274 $76 $134 
Consolidated Statements of Changes in Equity:   
Income tax expense (benefit) related to:   
Net unrealized gains on pension and other postretirement plans2 
Net unrealized gains (losses) on securities available for sale(46)25 35 
Net unrealized gains (losses) on cash flow hedges(3)
Total$227 $107 $179 
The components of income tax expense (benefit) for the years ended December 31, were as follows:
Table 8.15.2
INCOME TAX EXPENSE COMPONENTS
(Dollars in millions)202120202019
Current:   
Federal$235 $80 $106 
State39 14 14 
Deferred:  
Federal(1)(15)
State1 (3)
Total$274 $76 $134 

A reconciliation of expected income tax expense (benefit) at the federal statutory rate of 21% for 2021, 2020, and 2019, respectively to the total income tax expense follows:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
Table 8.15.3
RECONCILIATION FROM STATUTORY RATES
(Dollars in millions)202120202019
Federal income tax rate21 %21 %21 %
Tax computed at statutory rate$270 $196 $123 
Increase (decrease) resulting from:   
State income taxes, net of federal income tax benefit32 15 
Bank-owned life insurance(7)(6)(5)
401(k) – employee stock ownership plan(1)(1)(1)
Tax-exempt interest(10)(8)(6)
Non-deductible expenses8 13 11 
LIHTC credits and benefits, net of amortization (14)(9)(4)
Other tax credits(4)(5)— 
Other changes in unrecognized tax benefits4 (9)
Purchase accounting gain (112)— 
Other(4)(3)
Total$274 $76 $134 
As of December 31, 2021, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of $38 million and $2 million, respectively, which will expire at various dates as follows:
Table 8.15.4
TAX CARRYFORWARD DTA EXPIRATION DATES
(Dollars in millions)Expiration DatesNet Deferred Tax
Asset Balance
Losses - federal2026 - 2035$38 
Net operating losses - states2027 - 2040
A DTA or DTL is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. In order to support the recognition of the DTA, FHN’s management must believe that the realization of the DTA is more likely than not. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to the DTA. In projecting future taxable income, FHN incorporates assumptions including the estimated amount of future state and federal pretax operating income, the reversal of temporary differences, and the
implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business.
As of December 31, 2021, FHN's net DTA was $52 million compared to less than $1 million at December 31, 2020. At December 31, 2021, FHN's gross DTA (net of a valuation allowance) and gross DTL were $448 million and $396 million, respectively. Although realization is not assured, FHN believes that it meets the more-likely-than-not requirement with respect to the net DTA after valuation allowance.
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2021 and 2020 were as follows:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
Table 8.15.5
COMPONENTS OF DTAs & DTLs
(Dollars in millions)20212020
Deferred tax assets:  
Loss reserves$161 $205 
Employee benefits83 86 
Accrued expenses16 
Depreciation and amortization13 — 
Lease liability94 100 
Federal loss carryforwards38 44 
State loss carryforwards2 
Investment in debt securities (ASC 320) (a)12 — 
Other29 20 
Gross deferred tax assets448 471 
Deferred tax liabilities:  
Depreciation and amortization$ $83 
Investment in debt securities (ASC 320) (a) 35 
Equity investments4 11 
Other intangible assets86 93 
Prepaid expenses18 15 
ROU lease asset85 89 
Leasing198 135 
Other5 10 
Gross deferred tax liabilities396 471 
Net deferred tax assets$52 $— 
(a)    Tax effects of unrealized gains and losses are tracked on a security-by-security basis.

The total unrecognized tax benefits at December 31, 2021 and 2020, was $92 million and $70 million, respectively. To the extent such unrecognized tax benefits as of December 31, 2021 are subsequently recognized, $42 million of tax benefits could impact tax expense and FHN’s effective tax rate in future periods.
FHN is currently under audit in several jurisdictions. It is reasonably possible that the unrecognized tax benefits related to federal and state exposures could decrease by $58 million during 2022 if audits are completed and settled and if the applicable statutes of limitations expire as scheduled.
FHN recognizes interest accrued and penalties related to unrecognized tax benefits within income tax expense. FHN had approximately $14 million and $11 million accrued for the payment of interest as of December 31, 2021 and 2020, respectively. The total amount of interest and penalties recognized in the Consolidated Statements of Income during 2021 and 2020 was an expense of $3 million and $8 million, respectively.
The rollforward of unrecognized tax benefits is shown in the following table:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
Table 8.15.6
ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS
(Dollars in millions) 
Balance at December 31, 2019$24 
Increases related to prior year tax positions56 
Increases related to current year tax positions
Settlements(10)
Lapse of statutes(1)
Balance at December 31, 2020$70 
Increases related to prior year tax positions24 
Increases related to current year tax positions1 
Lapse of statutes(3)
Balance at December 31, 2021$92 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 16—EARNINGS PER SHARE
Note 16—Earnings Per Share
The following table provides reconciliations of net income to net income available to common shareholders and the difference between average basic common shares outstanding and average diluted common shares outstanding:
Table 8.16.1
NET INCOME & COMMON SHARE RECONCILIATIONS 
(Dollars in millions, except per share data; shares in thousands)202120202019
Net income$1,010 $857 $452 
Net income attributable to noncontrolling interest11 12 11 
Net income attributable to controlling interest999 845 441 
Preferred stock dividends37 23 
Net income available to common shareholders$962 $822 $435 
Weighted average common shares outstanding—basic546,354 432,125 313,637 
Effect of dilutive securities4,887 1,592 2,020 
Weighted average common shares outstanding—diluted551,241 433,717 315,657 
Basic earnings per common share $1.76 $1.90 $1.39 
Diluted earnings per common share $1.74 $1.89 $1.38 
The following table presents outstanding options and other equity awards that were excluded from the calculation of diluted earnings per share because they were either anti-dilutive (the exercise price was higher
than the weighted-average market price for the period) or the performance conditions have not been met:
Table 8.16.2
ANTI-DILUTIVE EQUITY AWARDS 
(Shares in thousands)202120202019
Stock options excluded from the calculation of diluted EPS1,366 4,595 2,359 
Weighted average exercise price of stock options excluded from the calculation of diluted EPS$20.44 $17.47 $21.12 
Other equity awards excluded from the calculation of diluted EPS1,531 3,639 2,224 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 17—CONTINGENCIES & OTHER DISCLOSURES
Note 17—Contingencies and Other Disclosures
Contingencies
Contingent Liabilities Overview
Contingent liabilities arise in the ordinary course of business. Often they are related to lawsuits, arbitration, mediation, and other forms of litigation. Various litigation matters are threatened or pending against FHN and its subsidiaries. Also, FHN at times receives requests for information, subpoenas, or other inquiries from federal, state, and local regulators, from other government authorities, and from other parties concerning various matters relating to FHN’s current or former businesses. Certain matters of that sort are pending at most times, and FHN generally cooperates when those matters arise. Pending and threatened litigation matters sometimes are settled by the parties, and sometimes pending matters are resolved in court or before an arbitrator, or are withdrawn. Regardless of the manner of resolution, frequently the most significant changes in status of a matter occur over a short time period, often following a lengthy period of little substantive activity. In view of the inherent difficulty of predicting the outcome of these matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, or where claims or other actions may be possible but have not been brought, FHN cannot reasonably determine what the eventual outcome of the matters will be, what the timing of the ultimate resolution of these matters may be, or what the eventual loss or impact related to each matter may be. FHN establishes a loss contingency liability for a litigation matter when loss is both probable and reasonably estimable as prescribed by applicable financial accounting guidance. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance requires a liability to be established at the low end of the range.
Based on current knowledge, and after consultation with counsel, management is of the opinion that loss contingencies related to threatened or pending litigation matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting period depending, in part, on the results from that period.
Material Loss Contingency Matters
Summary
As used in this Note, except for matters that are reported as having been substantially settled or otherwise substantially resolved, FHN's “material loss contingency matters” generally fall into at least one of the following categories: (i) FHN has determined material loss to be probable and has established a material loss liability in accordance with applicable financial accounting guidance;
(ii) FHN has determined material loss to be probable but is not reasonably able to estimate an amount or range of material loss liability; or (iii) FHN has determined that material loss is not probable but is reasonably possible, and the amount or range of that reasonably possible material loss is estimable. As defined in applicable accounting guidance, loss is reasonably possible if there is more than a remote chance of a material loss outcome for FHN. FHN provides contingencies note disclosures for certain pending or threatened litigation matters each quarter, including all matters mentioned in categories (i) or (ii) and, occasionally, certain matters mentioned in category (iii). In addition, in this Note, certain other matters, or groups of matters, are discussed relating to FHN’s pre-2009 mortgage origination and servicing businesses. In all litigation matters discussed in this Note, unless settled or otherwise resolved, FHN believes it has meritorious defenses and intends to pursue those defenses vigorously.
FHN reassesses the liability for litigation matters each quarter as the matters progress. At December 31, 2021, the aggregate amount of liabilities established for all such loss contingency matters was $2 million. These liabilities are separate from those discussed under the heading Mortgage Loan Repurchase and Foreclosure Liability below.
In each material loss contingency matter, except as otherwise noted, there is more than a remote chance that any of the following outcomes will occur: the plaintiff will substantially prevail; the defense will substantially prevail; the plaintiff will prevail in part; or the matter will be settled by the parties. At December 31, 2021, FHN estimates that for all material loss contingency matters, estimable reasonably possible losses in future periods in excess of currently established liabilities could aggregate in a range from zero to less than $1 million.
As a result of the general uncertainties discussed above and the specific uncertainties discussed for each matter mentioned below, it is possible that the ultimate future loss experienced by FHN for any particular matter may materially exceed the amount, if any, of currently established liability for that matter.
Material Matters
At December 31, 2021, no pending or known threatened matters were material loss contingency matters, as described above.
Exposures from pre-2009 Mortgage Business
FHN is contending with indemnification claims related to "other whole loans sold," which were mortgage loans originated by FHN before 2009 and sold outside of a securitization organized by FHN. These claims generally assert that FHN-originated loans contributed to losses in


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 17—CONTINGENCIES & OTHER DISCLOSURES
connection with mortgage loans securitized by the buyer of the loans. The claims generally do not include specific deficiencies for specific loans sold by FHN. Instead, the claims generally assert that FHN is liable for a share of the claimant's loss estimated by assessing the totality of the other whole loans sold by FHN to claimant in relation to the totality of the larger number of loans securitized by claimant. FHN is unable to estimate an RPL range for these matters due to significant uncertainties regarding: the number of, and the facts underlying, the loan originations which claimants assert are indemnifiable; the applicability of FHN’s contractual indemnity covenants to those facts and originations; and, in those cases where an indemnity claim may be supported, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN also has indemnification claims related to servicing obligations. The most significant is from Nationstar Mortgage LLC, currently doing business as “Mr. Cooper.” Nationstar was the purchaser of FHN’s mortgage servicing obligations and assets in 2013 and 2014 and, was FHN’s subservicer. Nationstar asserts several categories of indemnity obligations in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in litigation, but litigation in the future is possible. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: the exact nature of each of Nationstar’s claims and its position in respect of each; the number of, and the facts underlying, the claimed instances of indemnifiable events; the applicability of FHN’s contractual indemnity covenants to those facts and events; and, in those cases where the facts and events might support an indemnity claim, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN has additional potential exposures related to its pre-2009 mortgage businesses. A few of those matters have become litigation which FHN currently estimates are immaterial, some are non-litigation claims or threats, some are mere subpoenas or other requests for information, and in some areas FHN has no indication of any active or threatened dispute. Some of those matters might eventually result in settlements, and some might eventually result in adverse litigation outcomes, but none are included in the material loss contingency liabilities mentioned above or in the RPL range mentioned above.
Mortgage Loan Repurchase and Foreclosure Liability
FHN’s repurchase and foreclosure liability, primarily related to its pre-2009 mortgage businesses, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related
exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-whole, foreclosure, and certain related exposures and has accrued for losses of $17 million and $16 million as of December 31, 2021 and December 31, 2020, respectively. Accrued liabilities for FHN’s estimate of these obligations are reflected in other liabilities on the Consolidated Balance Sheets. Charges/expense reversals to increase/decrease the liability are included within other income on the Consolidated Statements of Income. The estimates are based upon currently available information and fact patterns that exist as of each balance sheet date and could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of FHN’s liability.
Other Disclosures
Indemnification Agreements and Guarantees
In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its directors and officers and standard representations and warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements.
The extent of FHN’s obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required by such agreements.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Note 18—Retirement Plans and Other Employee Benefits
Pension Plan
FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are “frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made a contribution of $6 million to the qualified pension plan in 2021, and no contributions were made in 2020 and 2019. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan in 2022.
FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments made under the non-qualified plans were $5 million for 2021. FHN anticipates making benefit payments under the non-qualified plans of $5 million in 2022.
Savings Plan
FHN provides all qualifying full-time employees with the opportunity to participate in FHN's tax qualified 401(k) savings plan. The qualified plan allows employees to defer receipt of earned salary, up to tax law limits, on a tax-advantaged basis. Accounts, which are held in trust, may be invested in a wide range of mutual funds and in FHN common stock. Up to tax law limits, FHN provides a 100% match for the first 6% of salary deferred, with company matching contributions invested according to a participant’s current investment election. Through a non-qualified savings restoration plan, FHN provides a restorative benefit to certain highly-compensated employees who participate in the savings plan and whose contribution elections are capped by tax limitations.
FHN also provides “flexible dollars” to assist employees with the cost of annual benefits and/or allow the employee to contribute to his or her qualified savings plan account. These “flexible dollars” are pre-tax contributions and are based upon the employees’ years of service and
qualified compensation. Contributions made by FHN through the flexible benefits plan and the company matches were $51 million for 2021, $37 million for 2020, and $28 million for 2019.
Other Employee Benefits
FHN provides postretirement life insurance benefits to certain employees and also provides postretirement medical insurance benefits to retirement-eligible employees, including certain prescription drug benefits. The postretirement medical plan is contributory with FHN contributing a fixed amount for certain participants.
Actuarial Assumptions
FHN’s process for developing the long-term expected rate of return of pension plan assets is based on capital market exposure as the source of investment portfolio returns. Capital market exposure refers to the plan’s allocation of its assets to asset classes, which primarily represent fixed income investments. FHN also considers expectations for inflation, real interest rates, and various risk premiums based primarily on the historical risk premium for each asset class. The expected return is based upon a time horizon of 30 years. Given its funded status, the asset allocation strategy for the qualified pension plan utilizes fixed income instruments that closely match the estimated duration of payment obligations.
The discount rates for the three years ended 2021 for pension and other benefits were determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to 30 years. The discount rates are selected based upon data specific to FHN’s plans and employee population. The bonds used to create the hypothetical yield curve were subjected to several requirements to ensure that the resulting rates were representative of the bonds that would be selected by management to fulfill the company’s funding obligations. In addition to the AA rating, only non-callable bonds were included. Each bond issue was required to have at least $300 million par outstanding so that each issue was sufficiently marketable. Finally, bonds more than two standard deviations from the average yield were removed. When selecting the discount rate, FHN matches the duration of high quality bonds with the duration of the obligations of the plan as of the measurement date. For all years presented, the measurement date of the benefit obligations and net periodic benefit costs was December 31.
The actuarial assumptions used in the defined benefit pension plans and other employee benefit plans were as follows:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Table 8.18.1
ACTUARIAL ASSUMPTIONS FOR DEFINED BENEFIT PLANS
 Benefit ObligationsNet Periodic Benefit Cost
202120202019202120202019
Discount rate      
Qualified pension2.95%2.63%3.31%2.64%3.31%4.43%
Nonqualified pension2.65%2.24%3.08%2.24%3.08%4.26%
Other nonqualified pension1.99%1.41%2.57%1.41%2.57%3.83%
Postretirement benefits
2.43%-3.07%
1.92% - 2.81%
2.85% - 3.44%
1.93%-2.81%
2.87% - 3.44%
4.04% - 4.56%
Expected long-term rate of return      
Qualified pension/
postretirement benefits
N/AN/AN/A2.30%3.45%4.80%
Postretirement benefit (retirees post January 1, 1993)N/AN/AN/A5.80%6.40%6.85%
Postretirement benefit (retirees prior to January 1, 1993)N/AN/AN/A1.00%0.90%0.05%
Since the benefits in the defined benefit pension plan are frozen, the rate of compensation increase has no effect on qualified pension benefits.
FHN has one pension plan where participants' benefits are affected by interest crediting rates. The plan's projected benefit obligation as of December 31, 2021, 2020 and 2019 and interest crediting rates for the respective years were as follows:
Table 8.18.2
PROJECTED BENEFIT OBLIGATION
& CREDITING RATE
(Dollars in millions)202120202019
Projected benefit obligation$12 $15 $16 
Interest crediting rate9.07 %8.20 %9.66 %
The components of net periodic benefit cost for the plan years 2021, 2020 and 2019 were as follows:
Table 8.18.3
COMPONENTS OF NET PERIODIC BENEFIT COST
(Dollars in millions)Pension BenefitsOther Benefits
202120202019202120202019
Components of net periodic benefit cost      
Interest cost$17 $24 $30 $1 $$
Expected return on plan assets(20)(26)(37)(1)(1)(1)
Amortization of unrecognized:      
Actuarial (gain) loss10 13 10  — — 
Net periodic benefit cost$7 $11 $$ $— $— 
The long-term expected rate of return is applied to the market-related value of plan assets in determining the expected return on plan assets. FHN determines the market-related value of plan assets using a hybrid methodology which recognizes liability-hedging assets at current fair value while return-seeking assets use a calculated value that recognizes changes in fair value over five years, as permitted by GAAP.
FHN utilizes a spot rate approach which applies duration-specific rates from the full yield curve to estimated future benefit payments for the determination of interest cost.
The following tables set forth the plans’ benefit obligations and plan assets for 2021 and 2020:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Table 8.18.4
BENEFIT OBLIGATIONS & PLAN ASSETS
(Dollars in millions)Pension BenefitsOther Benefits
2021202020212020
Change in benefit obligation    
Benefit obligation, beginning of year$893 $836 $46 $42 
Interest cost17 24 1 
Actuarial (gain) loss (a)(26)70 (5)
Actual benefits paid(39)(37)(1)(1)
Benefit obligation, end of year$845 $893 $41 $46 
Change in plan assets    
Fair value of plan assets, beginning of year$896 $826 $23 $20 
Actual return on plan assets(18)103 3 
Employer contributions10 1 
Actual benefits paid – settlement payments(3)(36)(1)(1)
Actual benefits paid – other payments(2)(1) — 
Premium paid for annuity purchase (b)(34)—  — 
Fair value of plan assets, end of year$849 $896 $26 $23 
Funded (unfunded) status of the plans$4 $$(15)$(23)
Amounts recognized in the Balance Sheets    
Other assets$37 $40 $23 $20 
Other liabilities(33)(37)(38)(43)
Net asset (liability) at end of year$4 $$(15)$(23)
(a)Variances in the actuarial (gain) loss are due to normal activity such as changes in discount rates, updates to participant demographic information and revisions to life expectancy assumptions.
(b)2021 amount represents settlements of certain retired participants in the qualified pension plan that occurred during the year.


The projected benefit obligation for unfunded plans was as follows:
Table 8.18.5
BENEFIT OBLIGATION - UNFUNDED PLANS
Pension BenefitsOther Benefits
(Dollars in millions)2021202020212020
Projected benefit obligation$33 $37 $38 $43 
The qualified pension plan was overfunded by $37 million and $41 million as of December 31, 2021 and 2020, respectively. Because of the pension freeze at the end of 2012, as of both December 31, 2021 and 2020, the pension benefit obligation is equivalent to the accumulated benefit obligation. FHN's funded post retirement plan was also in an overfunded status as of December 31, 2021 and 2020.
Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are recognized as a component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive income on a pre-tax basis for the years ended December 31, 2021 and 2020 consist of:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Table 8.18.6
PRE-TAX ACTUARIAL GAINS (LOSSES) REFLECTED IN AOCI
(Dollars in millions)Pension BenefitsOther Benefits
2021202020212020
Amounts recognized in accumulated other comprehensive income    
Net actuarial (gain) loss$342 $342 $(6)$
The pre-tax amounts recognized in other comprehensive income during 2021, 2020, and 2019 were as follows:
Table 8.18.7
PRE-TAX AMOUNTS RECOGNIZED IN OCI
(Dollars in millions)Pension BenefitsOther Benefits
202120202019202120202019
Changes in plan assets and benefit obligation recognized in other comprehensive income    
Net actuarial (gain) loss arising during measurement period$13 $(8)$(14)$(7)$$
Items amortized during the measurement period:    
Net actuarial gain (loss)(10)(13)(10) — — 
Total recognized in other comprehensive income$3 $(21)$(24)$(7)$$
FHN utilizes the minimum amortization method in determining the amount of actuarial gains or losses to include in plan expense. Under this approach, the net deferred actuarial gain or loss that exceeds a threshold is amortized over the average remaining service period of active plan participants. The threshold is measured as the greater of: 10% of a plan’s projected benefit obligation as of the beginning of the year or 10% of the market related value of plan assets as of the beginning of the year. FHN amortizes actuarial gains and losses using the estimated average remaining life expectancy of the remaining participants since all participants are considered inactive due to the freeze.
The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate:
Table 8.18.8
EXPECTED BENEFIT PAYMENTS
(Dollars in millions)Pension
Benefits
Other
Benefits
2022$40 $
202342 
202443 
202545 
202646 
2027-2031232 11 
Plan Assets
FHN’s overall investment goal is to create, over the life of the pension plan and retiree medical plan, an adequate
pool of sufficiently liquid assets to support the qualified pension benefit obligations to participants, retirees, and beneficiaries, as well as to partially support the medical obligations to retirees and beneficiaries. Thus, the qualified pension plan and retiree medical plan seek to achieve a level of investment return consistent with changes in projected benefit obligations.
Qualified pension plan assets primarily consist of fixed income securities which include U.S. treasuries, corporate bonds of companies from diversified industries, municipal bonds, and foreign bonds. Fixed income investments generally have long durations consistent with the estimated pension liabilities of FHN. This duration-matching strategy is intended to hedge substantially all of the plan’s risk associated with future benefit payments. Retiree medical funds are kept in short-term investments, primarily money market funds and mutual funds. On December 31, 2021 and 2020, FHN did not have any significant concentrations of risk within the plan assets related to the pension plan or the retiree medical plan.
The fair value of FHN’s pension plan assets at December 31, 2021 and 2020, by asset category classified using the Fair Value measurement hierarchy, is shown in the tables below. See Note 24 – Fair Value of Assets and Liabilities for more details about fair value measurements.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Tables 8.18.9a-b
FAIR VALUE OF PENSION ASSETS
(Dollars in millions)December 31, 2021
Level 1Level 2Level 3Total
Cash equivalents and money market funds$45 $— $— $45 
Fixed income securities:    
U.S. treasuries— 15 — 15 
Corporate, municipal and foreign bonds— 445 — 445 
Common and collective funds:    
Fixed income— 344 — 344 
Total$45 $804 $ $849 
(Dollars in millions)December 31, 2020
Level 1Level 2Level 3Total
Cash equivalents and money market funds$23 $— $— $23 
Fixed income securities:    
U.S. treasuries— — 
Corporate, municipal and foreign bonds— 488 — 488 
Common and collective funds:
Fixed income— 379 — 379 
Total$23 $873 $— $896 
The Pension and Savings Investment Committees, comprised of senior managers within the organization, meet regularly to review asset performance and potential portfolio revisions.
Adjustments to the qualified pension plan asset allocation primarily reflect changes in anticipated liquidity needs for plan benefits.
The fair value of FHN’s retiree medical plan assets at December 31, 2021 and 2020 by asset category are as follows:
Tables 8.18.10a-b
FAIR VALUE OF RETIREE MEDICAL PLAN ASSETS
(Dollars in millions)December 31, 2021
Level 1Level 2Level 3Total
Mutual funds:    
Equity mutual funds$17 $— $— $17 
Fixed income mutual funds— — 
Total$26 $ $ $26 
(Dollars in millions)December 31, 2020
Level 1Level 2Level 3Total
Mutual funds:    
Equity mutual funds$15 $— $— $15 
Fixed income mutual funds— — 
Total$23 $— $— $23 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
Note 19—Stock Options, Restricted Stock, and Dividend Reinvestment Plans
Equity Compensation Plans
FHN currently has one plan which authorizes the grant of new stock-based awards, the 2021 Incentive Plan (the IP). New awards under the IP may be granted to any of FHN's directors, officers, or associates. The IP was approved by shareholders in April 2021. Most awards outstanding at year end were granted under predecessor plans which are no longer active.
The IP authorizes a broad range of award types, including restricted shares, stock units, cash units, and stock options. Stock units may be paid in shares or cash, depending upon the terms of the award. The IP also authorizes the grant of stock appreciation rights, though no such grants have been made under the IP or recent predecessor plans. Unvested awards have service and/or performance conditions which must be met in order for the shares to vest. Awards generally have service-vesting conditions, meaning that the associate must remain employed by FHN for certain periods in order for the award to vest. Some outstanding awards also have performance conditions, and one outstanding award has performance conditions associated with FHN’s stock price. FHN operates the IP by establishing award programs, each of which is intended to cover a specific need. Programs are created, changed, or terminated as needs change.
On December 31, 2021, there were 12,329,976 shares available for new awards under the IP. This includes the new/additional shares originally authorized under the IP along with shares underlying ECP awards that have been forfeited or canceled since the IP was approved by shareholders, net of shares underlying IP awards that are outstanding or have been paid.

Service condition full-value awards
Awards may be granted with service conditions only. In recent years, programs using these awards have included annual programs for executives and selected management associates, a mandatory deferral program for executives tied to annual bonuses earned, other mandatory or elective deferral programs, various retention programs, and special hiring-incentive situations. Details of the awards vary by program, but most are settled in shares at vesting rather than cash, and vesting generally begins no earlier than the third anniversary of grant and rarely extends beyond the fifth anniversary of grant.
Performance condition awards
Under FHN’s long-term incentive and corporate performance programs, performance stock units (PSUs) (executives) and cash units (selected management employees) are granted annually and vest only if predetermined performance measures are met. The measures are changed each year based on goals and circumstances prevailing at the time of grant. In recent
years the performance periods have been three years, with service-vesting near the third anniversary of the grant. PSUs granted from 2014 to 2020 have a post-vest holding period of two years. PSUs granted after 2020 no longer have the 2-year holding period. Recent annual performance awards require pro-rated forfeiture for performance falling between a threshold level and a maximum. Performance awards sometimes are used to provide a narrow, targeted incentive to a single person or small group; one such award which includes a market performance condition to FHN’s CEO is discussed in the next paragraph. Of the annual program awards paid during 2021 or outstanding on December 31, 2021: the 2016 units vested in 2019 and their two year post-vesting holding period ended during 2021, 2017 and 2018 units vested in 2020 and 2021 at the 104.2% and 133.3% payout level, respectively, and remain in a two year post-vesting holding period; the three-year performance period of the 2019 units has ended but performance is measured relative to peers and has not yet been determined; and, the three-year performance periods for the 2020 and 2021 units have not ended.
Market condition award
In 2016, FHN made a special grant of performance stock units to FHN’s CEO which will vest at the end of a performance period of seven years. The award has no provision for pro-rated payment based on partial performance. The award’s performance goal is based on achievement of a specific level of total shareholder return during the performance period.
Director awards
Non-employee directors receive cash and annual grants of service-conditioned stock units under a program approved by the board of directors. Director stock units granted prior to the IBKC merger vest in the year following the year of grant, require a payment deferral of two years, and settle in shares after the deferral period. Director stock units granted after the IBKC merger no longer have the 2-year holding period. In 2021 and 2020, each director received $122,000 or prorated equivalent of stock units, representing a portion of their annual retainer. Effective with the IBKC merger on July 1, 2020, the annual grant of director stock units was increased to $122,000 or prorated equivalent of stock units and all directors then in office received a supplemental grant to bring all directors up to the new annual grant level. Prior to 2005, directors could elect to defer cash compensation in the form of discount-priced stock options, some of which remain outstanding.
Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year ended December 31, 2021, is presented below:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
Table 8.19.1
RESTRICTED AND PERFORMANCE EQUITY AWARD ACTIVITY
Shares/
Units (a)
Weighted average
grant date fair value
(per share) (b)
January 1, 20218,270,216 $12.47 
Shares/units granted4,330,371 13.56 
Shares/units vested/distributed(637,689)12.31 
Shares/units canceled(2,666,010)13.05 
December 31, 20219,296,888 $13.14 
(a)Includes only units that settle in shares; nonvested performance units are included at 100% payout level.
(b)The weighted average grant date fair value for shares/units granted in 2020 and 2019 was $12.47 and $16.25, respectively.

On December 31, 2021, there was $73 million of unrecognized compensation cost related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of two years. The total grant date fair value of shares vested during 2021, 2020 and 2019, was $36 million, $24 million, and $15 million, respectively.
Stock option awards
In 2021 FHN ended its only remaining stock option program, making only one grant related to a 2020 commitment. Options under that program, for executives, have service-vesting requirements and seven-year terms.
In the past, option programs varied widely in their uses and terms, and many old-program options, granted under the ECP or its predecessor plans, remain outstanding today. All options granted since 2005 provide for the issuance of FHN common stock at a price fixed at its fair market value on the grant date. Except for converted options and a special retention stock option award to the CEO in 2016, all options granted since 2008 vest fully no
later than the fourth anniversary of grant, and all such options expire seven years from the grant date. CBF converted options and IBKC converted options granted prior to November 3, 2019 (the merger agreement date) are fully vested and expire ten years from grant date. IBKC converted options granted subsequent to the merger agreement vest fully no later than the fifth anniversary of the grant date and expire ten years from grant date. The 2016 retention award vests beginning on the fourth anniversary of grant and extends through the sixth anniversary of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Deferral options still outstanding expire 20 years from the grant date.
The summary of stock option activity for the year ended December 31, 2021, is shown below:
Table 8.19.2
STOCK OPTION ACTIVITY
Options
Outstanding
Weighted
Average
Exercise Price
(per share)
Weighted Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(millions)
January 1, 20217,749,082 $15.20   
Options granted155,124 14.44   
Options exercised(2,302,642)11.88   
Options expired/canceled(620,635)22.44   
December 31, 20214,980,929 $15.81 3.99$
Options exercisable3,697,062 15.95 3.51
Options expected to vest1,283,867 15.15 4.39
The total intrinsic value of options exercised during 2021, 2020 and 2019 was $12 million, $3 million, and $4 million, respectively. On December 31, 2021, there was less than $1 million of unrecognized compensation cost related to
nonvested stock options. That cost is expected to be recognized over a weighted-average period of 2.7 years.
FHN granted or converted 155,124, 4,182,737 and 530,787 stock options with a weighted average fair value


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
of $3.39, $2.13, and $2.69 per option at grant date in 2021, 2020 and 2019, respectively.
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or
converted in 2021, 2020, and 2019 with the following assumptions:
Table 8.19.3
STOCK OPTION FAIR VALUE ASSUMPTIONS
202120202019
Expected dividend yield4.16%3.77%3.63%
Expected weighted-average lives of options granted6.29 years6.25 years6.24 years
Expected weighted-average volatility38.44%23.94%24.76%
Expected volatility range
37.86%-39.02%
23.32 - 24.56%
 23.07 - 26.45%
Risk-free interest rate0.62%1.47%2.53%
Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. FHN uses a blend of historical and implied volatility in determining expected volatility. A portion of the weighted average volatility rate is derived by compiling daily closing stock prices over a historical period approximating the expected lives of the options. Additionally, because of market volatility due to economic conditions and the impact on stock prices of financial institutions, FHN also incorporates a measure of implied volatility so as to incorporate more recent market conditions in the estimation of future volatility.
Phantom stock awards
As a result of the IBKC merger, FHN assumed phantom stock awards under various plans to officers and other key associates. The awards are subject to a vesting period of five years and are paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested share equivalents multiplied by closing market price of a share of the Company's common stock on the vesting date. Share equivalents are calculated on the date of grant as the total award's dollar value divided by the closing market price of a share of the Company's common stock on the grant date. As of December 31, 2021, there were 461,142 share equivalents of phantom stock awards outstanding. See Note 1 - Significant Accounting Policies for more discussion on FHN's phantom stock awards.
Compensation Cost
The compensation cost that has been included in the Consolidated Statements of Income pertaining to stock-based awards was $43 million, $32 million, and $22 million for 2021, 2020, and 2019, respectively. The corresponding total income tax benefits recognized were $10 million in 2021, $8 million in 2020, and $6 million in 2019.
Authorization
Consistent with Tennessee state law, only authorized, but unissued, stock may be utilized in connection with any
issuance of FHN common stock which may be required as a result of stock based compensation awards. FHN has obtained authorization from the Board of Directors to repurchase up to certain numbers of shares related to issuance under the IP and several older stock award plans. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess equity, legal and regulatory restrictions, and prudent capital management. FHN does not currently expect to repurchase a material number of shares under the compensation plan-related repurchase program during 2022.
Dividend reinvestment plan
The Dividend Reinvestment and Stock Purchase Plan authorizes the sale of FHN’s common stock from stock acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions. The price of stock purchased on the open market is the average price paid.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 20—BUSINESS SEGMENT INFORMATION
Note 20—Business Segment Information
FHN's operating segments are composed of the following:
Regional Banking segment offers financial products and services, including traditional lending and deposit taking, to consumer and commercial clients primarily in the southern U.S. and other selected markets. Regional Banking also provides investment, wealth management, financial planning, trust and asset management services for consumer clients.
Specialty Banking segment consists of lines of business that deliver product offerings and services with specialized industry knowledge. Specialty Banking’s lines of business include asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, mortgage, and title insurance. In addition to traditional lending and deposit taking, Specialty Banking also delivers treasury management solutions, loan syndications, and international banking. Additionally, Specialty Banking has a line of business focused on fixed income securities sales, trading, underwriting, and strategies for institutional clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative sales.
Corporate segment consists primarily of corporate support functions including risk management, audit, accounting, finance, executive office, and corporate communications. Shared support services such as human resources, properties, technology, credit risk and bank operations are allocated to the activities of Regional Banking, Specialty Banking and Corporate. Additionally, the Corporate segment includes centralized management of capital and funding to support the business activities of the company
including management of wholesale funding, liquidity, and capital management and allocation. The Corporate segment also includes the revenue and expense associated with run-off businesses such as pre-2009 mortgage banking elements, run-off consumer and trust preferred loan portfolios, and other exited businesses.
Periodically, FHN adapts its segments to reflect managerial or strategic changes. During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's reportable business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. The closing of the FHN and IBKC merger-of-equals transaction prompted organizational changes to better integrate and execute the combined Company's strategic priorities across all lines of businesses. As a result, segment information for 2020 has been reclassified to conform to the current period presentation.
FHN may also modify its methodology of allocating expenses and equity among segments which could change historical segment results. Business segment revenue, expense, asset, and equity levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, to an extent they are subjective. Generally, all assignments and allocations have been consistently applied for all periods presented.
The following tables present financial information for each reportable business segment for the years ended December 31:
Tables 8.20.1a-b-c
SEGMENT FINANCIAL INFORMATION
2021
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Net interest income (expense)$1,764 $619 $(389)$1,994 
Provision for credit losses(229)(64)(17)(310)
Noninterest income438 597 41 1,076 
Noninterest expense (b)(c)(f)1,151 571 374 2,096 
Income (loss) before income taxes1,280 709 (705)1,284 
Income tax expense (benefit)298 171 (195)274 
Net income (loss)$982 $538 $(510)$1,010 
Average assets$45,445 $20,803 $21,361 $87,609 
Depreciation and amortization(71)(2)101 28 
Expenditures for long-lived assets27 3 7 37 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 20—BUSINESS SEGMENT INFORMATION
2020
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Net interest income (expense)$1,264 $572 $(174)$1,662 
Provision for credit losses (e)392 116 (5)503 
Noninterest income (a)345 576 571 1,492 
Noninterest expense (b)(c)(d)944 494 280 1,718 
Income (loss) before income taxes273 538 122 933 
Income tax expense (benefit)56 131 (111)76 
Net income (loss)$217 $407 $233 $857 
Average assets$32,782 $19,822 $11,742 $64,346 
Depreciation and amortization(42)84 46 
Expenditures for long-lived assets283 90 379 
2019
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Net interest income (expense)$833 $389 $(12)$1,210 
Provision for credit losses24 37 (16)45 
Noninterest income293 315 46 654 
Noninterest expense (b)(c)(d)(f)678 347 208 1,233 
Income (loss) before income taxes424 320 (158)586 
Income tax expense (benefit)97 79 (42)134 
Net income (loss)$327 $241 $(116)$452 
Average assets$18,236 $15,517 $7,991 $41,744 
Depreciation and amortization22 14 29 65 
Expenditures for long-lived assets29 16 49 
(a)    2020 includes a $533 million purchase accounting gain associated with the IBKC merger in the Corporate segment.
(b)    2019 includes restructuring-related costs associated with efficiency initiatives; refer to Note 25 - Restructuring, Repositioning, and Efficiency for additional information. 2021, 2020 and 2019 include merger-related expenses; refer to Note 2 - Acquisitions and Divestitures for additional information.
(c)    2021 and 2020 includes$37 million and $13 million, respectively, in asset impairments related to IBKC merger integration efforts in the Corporate segment. 2019 includes $25 million of asset impairments associated with acquisition, restructuring, and rebranding initiatives.
(d)    2020 and 2019 include $41 million and $11 million, respectively, of contributions to FHN's foundations.
(e)    Increase in provision for credit losses in 2020 is primarily due to the provision related to non-PCD loans acquired in the IBKC merger and Truist branch acquisition and the economic forecast attributable to the COVID-19 pandemic.
(f)    2021 and 2019 include $19 million and $4 million, respectively, in derivative valuation adjustments related to prior sales of Visa Class B shares in the Corporate segment.














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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 20—BUSINESS SEGMENT INFORMATION
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable segment for the years ended December 31, 2021, 2020, and 2019:
Tables 8.20.2a-b-c
NONINTEREST INCOME DETAIL BY SEGMENT
December 31, 2021
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Noninterest income:
Fixed income (a)$ $406 $ $406 
Deposit transactions and cash management157 12 6 175 
Mortgage banking and title income 152 2 154 
Brokerage, management fees and commissions88   88 
Card and digital banking fees67 3 8 78 
Trust services and investment management51   51 
Other service charges and fees23 17 4 44 
Securities gains (losses), net (b)  13 13 
Purchase accounting gain  (1)(1)
Other income (c)52 7 9 68 
     Total noninterest income$438 $597 $41 $1,076 
December 31, 2020
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Noninterest income:
Fixed income (a)$$422 $— $423 
Deposit transactions and cash management131 11 148 
Mortgage banking and title income— 128 129 
Brokerage, management fees and commissions66 — — 66 
Card and digital banking fees50 60 
Trust services and investment management39 — — 39 
Other service charges and fees18 26 
Securities gains (losses), net (b)— — (6)(6)
Purchase accounting gain— — 533 533 
Other income (c)40 28 74 
     Total noninterest income$345 $576 $571 $1,492 
December 31, 2019
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Noninterest income:
Fixed income (a)$— $278 $$279 
Deposit transactions and cash management114 11 132 
Mortgage banking and title income— 10 
Brokerage, management fees and commissions55 — — 55 
Card and digital banking fees41 49 
Trust services and investment management30 — — 30 
Other service charges and fees16 — 21 
Other income (c)37 11 30 78 
     Total noninterest income$293 $315 $46 $654 
(a)2021, 2020 and 2019, include $44million , $39 million and $34 million, respectively, of underwriting, portfolio advisory, and other noninterest income in scope of ASC 606, "Revenue From Contracts With Customers."
(b)Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total noninterest income.
(c)Includes letter of credit fees and insurance commissions in scope of ASC 606.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 21—VARIABLE INTEREST ENTITIES
Note 21—Variable Interest Entities
FHN makes equity investments in various entities that are considered VIEs, as defined by GAAP. A VIE typically does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The Company’s variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity's net assets. FHN consolidates a VIE if it is the primary beneficiary of the entity. FHN is the primary beneficiary of a VIE if its variable interest provides it with the power to direct the activities that most significantly impact the VIE and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to the VIE. To determine whether or not a variable interest held could potentially be significant to the VIE, FHN considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE. FHN assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.
Consolidated Variable Interest Entities
FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to FHN’s creditors only in the event that FHN becomes insolvent. These trusts are considered VIEs as there is no equity at risk in the trusts since FHN provided the equity interest to its employees in exchange for services rendered. FHN is considered the primary beneficiary of the rabbi trusts as it has the power to direct the activities that most significantly impact the economic performance of the rabbi trusts through its ability to direct the underlying investments made by the trusts. Additionally, FHN could potentially receive benefits or absorb losses that are significant to the trusts due to its right to receive any asset values in excess of liability payoffs and its obligation to fund any liabilities to employees that are in excess of a rabbi trust’s assets.
The following table summarizes the carrying value of assets and liabilities associated with rabbi trusts used for deferred compensation plans which are consolidated by FHN as of December 31, 2021 and 2020:

Table 8.21.1
CONSOLIDATED VIEs 
(Dollars in millions)December 31, 2021December 31, 2020
Assets:
Other assets$205 $195 
Liabilities:
Other liabilities$179 $165 
Nonconsolidated Variable Interest Entities
Low Income Housing Tax Credit Partnerships
Through designated wholly-owned subsidiaries, First Horizon Bank makes equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the LIHTC. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities that most significantly affect the performance of the partnerships. FHN is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, FHN does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
FHN accounts for all qualifying LIHTC investments under the proportional amortization method. Under this method an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance as a component of income tax expense. LIHTC investments that do not qualify for the proportional amortization method are accounted for using the equity method. Expenses associated with non-qualifying LIHTC investments were not material during 2021, 2020, and 2019.
The following table summarizes the impact to income tax expense on the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 for LIHTC investments accounted for under the proportional amortization method.
Table 8.21.2
LIHTC IMPACTS ON TAX EXPENSE
(Dollars in millions)202120202019
Income tax expense (benefit):
Amortization of qualifying LIHTC investments$26 $23 $15 
Low income housing tax credits(32)(22)(14)
Other tax benefits related to qualifying LIHTC investments(7)(10)(6)


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 21—VARIABLE INTEREST ENTITIES

Other Tax Credit Investments
Through designated subsidiaries, First Horizon Bank periodically makes equity investments as a non-managing member in various LLCs that sponsor community development projects utilizing the NMTC. First Horizon Bank also makes equity investments as a limited partner or non-managing member in entities that receive solar and historic tax credits. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. These entities are considered VIEs as First Horizon Bank's subsidiaries represent the holders of the equity investment at risk, but do not have the ability to direct the activities that most significantly affect the performance of the entities.
Small Issuer Trust Preferred Holdings
First Horizon Bank holds variable interests in trusts which have issued mandatorily redeemable preferred capital securities (“trust preferreds”) for smaller banking and insurance enterprises. First Horizon Bank has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the issuing enterprises. The creditors of the trusts hold no recourse to the assets of First Horizon Bank. Since First Horizon Bank is solely a holder of the trusts’ securities, it has no rights that would give it the power to direct the activities that most significantly impact the trusts’ economic performance and thus it is not considered the primary beneficiary of the trusts. First Horizon Bank has no contractual requirements to provide financial support to the trusts.
On-Balance Sheet Trust Preferred Securitization
In 2007, First Horizon Bank executed a securitization of certain small issuer trust preferreds for which the underlying trust meets the definition of a VIE, as the holders of the equity investment at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entity’s economic performance. Since First Horizon Bank did not retain servicing or other decision-making rights, First Horizon Bank is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the trust’s economic performance. Accordingly, First Horizon Bank has accounted for the funds received through the securitization as a term borrowing in its Consolidated Balance Sheets. First Horizon Bank has no contractual requirements to provide financial support to the trust.
Holdings in Agency Mortgage-Backed Securities
FHN holds securities issued by various Agency securitization trusts. Based on their restrictive nature, the trusts meet the definition of a VIE since the holders of the
equity investments at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entities’ economic performance. FHN could potentially receive benefits or absorb losses that are significant to the trusts based on the nature of the trusts’ activities and the size of FHN’s holdings. However, FHN is solely a holder of the trusts’ securities and does not have the power to direct the activities that most significantly impact the trusts’ economic performance, and is not considered the primary beneficiary of the trusts. FHN has no contractual requirements to provide financial support to the trusts.
Commercial Loan Troubled Debt Restructurings
For certain troubled commercial loans, First Horizon Bank restructures the terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due. Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered as events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As First Horizon Bank does not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary even in situations where, based on the size of the financing provided, First Horizon Bank is exposed to potentially significant benefits and losses of the borrowing entity. First Horizon Bank has no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt that allows for preparation of the underlying collateral for sale.
Proprietary Trust Preferred Issuances
In conjunction with its acquisitions, FHN acquired junior subordinated debt underlying multiple issuances of trust preferred debt. All of the trusts are considered VIEs because the ownership interests from the capital contributions to these trusts are not considered “at risk” in evaluating whether the holders of the equity investments at risk in the trusts have the ability to direct the activities that most significantly impact the entities’ economic performance. Thus, FHN cannot be the trusts’ primary beneficiary because its ownership interests in the trusts are not considered variable interests as they are not considered “at risk”. Consequently, none of the trusts are consolidated by FHN.
The following tables summarize FHN’s nonconsolidated VIEs as of December 31, 2021 and 2020:
 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 21—VARIABLE INTEREST ENTITIES
Table 8.21.3
NONCONSOLIDATED VIEs AT YE 2021
(Dollars in millions)Maximum
Loss Exposure
Liability
Recognized
Classification
Type:
Low income housing partnerships$382 $129 (a)
Other tax credit investments (b)77 56 Other assets
Small issuer trust preferred holdings (c)195 — Loans and leases
On-balance sheet trust preferred securitization27 87 (d)
Holdings of agency mortgage-backed securities (c)8,550 — (e)
Commercial loan troubled debt restructurings (f)98 — Loans and leases
Proprietary trust preferred issuances (g)— 167 Term borrowings
(a)    Maximum loss exposure represents $253 million of current investments and $129 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are recognized in other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b)    Maximum loss exposure represents the value of current investments.
(c)    Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d)    Includes $112 million classified as loans and leases, and $2 million classified as trading securities which are offset by $87 million classified as term borrowings.
(e)    Includes $526 million classified as trading securities, $712 million classified as securities held to maturity and $7.3 billion classified as securities available for sale.
(f)    Maximum loss exposure represents $94 million of current receivables and $4 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g)    No exposure to loss due to nature of FHN's involvement.

Table 8.21.4
NONCONSOLIDATED VIEs AT YE 2020
(Dollars in millions)Maximum
Loss Exposure
Liability
Recognized
Classification
Type:
Low income housing partnerships$338 $132 (a)
Other tax credit investments (b) 64 42 Other assets
Small issuer trust preferred holdings (c)210 — Loans and leases
On-balance sheet trust preferred securitization32 82 (d)
Holdings of agency mortgage-backed securities (c)7,063 — (e)
Commercial loan troubled debt restructurings (f)186 — Loans and leases
Proprietary trust preferred issuances (g)— 287 Term borrowings
(a)Maximum loss exposure represents $206 million of current investments and $132 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are recognized in other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b)Maximum loss exposure represents the value of current investments.
(c)Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d)Includes $112 million classified as loans and leases and $2 million classified as trading securities, which are offset by $82 million classified as term borrowings.
(e)Includes $845 million classified as trading securities and $6.2 billion classified as securities available for sale.
(f)Maximum loss exposure represents $176 million of current receivables and $10 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g)No exposure to loss due to nature of FHN's involvement.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
Note 22—Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-related agreements) through its fixed income and risk management operations, as part of its risk management strategy and as a means to meet clients’ needs. Derivative instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet as required by GAAP. The contractual or notional amounts of these financial instruments do not necessarily represent the amount of credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The ALCO controls, coordinates, and monitors the usage and effectiveness of these financial instruments.
Credit risk represents the potential loss that may occur if a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties, and by using mutual margining and master netting agreements whenever possible to limit potential exposure. FHN also maintains collateral posting requirements with certain counterparties to limit credit risk. Daily margin posted or received with central clearinghouses is considered a legal settlement of the related derivative contracts which results in a net presentation for each contract in the Consolidated Balance Sheets. Treatment of daily margin as a settlement has no effect on hedge accounting or gains/losses for the applicable derivative contracts. On December 31, 2021 and 2020, respectively, FHN had $181 million and $280 million of cash receivables and $102 million and $166 million of cash payables related to collateral posting under master netting arrangements, inclusive of collateral posted related to contracts with adjustable collateral posting thresholds and over-collateralized positions, with derivative counterparties. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. See additional discussion regarding master netting agreements and collateral posting requirements later in this note under the heading “Master Netting and Similar Agreements.” Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken.
FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments
FHN enters into various derivative contracts both to facilitate client transactions and as a risk management tool. Where contracts have been created for clients, FHN enters into upstream transactions with dealers to offset its risk exposure. Contracts with dealers that require central clearing are novated to a clearing agent who becomes FHN’s counterparty. Derivatives are also used as a risk management tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.
Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.
Trading Activities
FHNF trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed, corporate and municipal fixed income securities, and other securities for distribution to clients. When these securities settle on a delayed basis, they are considered forward contracts. FHNF also enters into interest rate contracts, including caps, swaps, and floors for its clients. In addition, FHNF enters into futures and option contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value recognized in noninterest income. Related assets and liabilities are recorded on the Consolidated Balance Sheets as derivative assets and derivative liabilities within other assets and other liabilities. The FHNF Risk Committee and the Credit Risk Management Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled through credit approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were $360 million, $371 million and $228 million for the years ended December 31, 2021, 2020 and 2019, respectively. Trading revenues are inclusive of both


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
derivative and non-derivative financial instruments, and are included in fixed income on the Consolidated Statements of Income.
The following tables summarize derivatives associated with FHNF's trading activities as of December 31, 2021 and 2020:
Table 8.22.1a-b
DERIVATIVES ASSOCIATED WITH TRADING
 December 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Customer interest rate contracts$3,587 $84 $41 
Offsetting upstream interest rate contracts3,587 4 8 
Option contracts purchased13   
Forwards and futures purchased4,430 2 9 
Forwards and futures sold5,044 10 2 
 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Customer interest rate contracts$3,950 $207 $
Offsetting upstream interest rate contracts3,950 17 
Forwards and futures purchased10,795 62 — 
Forwards and futures sold11,633 65 
Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to hedge the fair value of long term debt is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a part of a product offering to commercial clients that includes customer
derivatives paired with upstream offsetting market instruments that, when completed, are designed to mitigate interest rate risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in noninterest expense on the Consolidated Statements of Income.
FHN had designated a derivative transaction in a hedging strategy to manage interest rate risk on $500 million of senior debt prior to its maturity in December 2020. This transaction qualified for hedge accounting using the long-haul method. FHN early redeemed the $500 million senior debt in November 2020.
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of December 31, 2021 and 2020:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
Table 8.22.2a-b
DERIVATIVES ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
 December 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Customer Interest Rate Contracts Hedging 
Hedging Instruments and Hedged Items: 
Customer interest rate contracts$8,037 $202 $29 
Offsetting upstream interest rate contracts8,037 4 15 
 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items: 
Customer interest rate contracts$6,868 $436 $
Offsetting upstream interest rate contracts6,868 35 
The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management activities for the years ended December 31, 2021, 2020, and 2019:
Table 8.22.3
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
Year Ended December 31,
202120202019
(Dollars in millions)Gains (Losses)Gains (Losses)Gains (Losses)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts (a)$(268)$357 $92 
Offsetting upstream interest rate contracts (a)268 (357)(92)
Debt Hedging
Hedging Instruments:
Interest rate swaps (b)$ $$13 
Hedged Items:
Term borrowings (a) (c) (2)(13)
(a)Gains (losses) included in other expense within the Consolidated Statements of Income.
(b)Gains (losses) included in interest expense.
(c)Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships.

Cash Flow Hedges
Prior to 2021, FHN had pay floating, receive fixed interest rate swaps designed to manage its exposure to the variability in cash flows related to interest payments on debt instruments, which primarily consisted of held-to-maturity trust preferred loans. In conjunction with the IBKC merger, FHN acquired interest rate contracts (floors and collars) which have been re-designated as cash flow hedges. The debt instruments primarily consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR.
In a cash flow hedge, the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings (interest income or interest expense) in the same period that the hedged item affects earnings.
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of December 31, 2021 and 2020:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
Table 8.22.4a-b
DERIVATIVES ASSOCIATED WITH CASH FLOW HEDGES
 December 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Cash Flow Hedges 
Hedging Instruments: 
Interest rate contracts$1,100 $13 $ 
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)N/A$1,100 N/A
 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Cash Flow Hedges
Hedging Instruments: 
Interest rate contracts$1,250 $32 $— 
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)N/A$1,250 N/A
The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the years ended December 31, 2021, 2020, and 2019:
Table 8.22.5
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH CASH FLOW HEDGES
Year Ended December 31,
202120202019
(Dollars in millions)Gains (Losses)Gains (Losses)Gains (Losses)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts (a) $29 $$21 
Gain (loss) recognized in other comprehensive income (loss)(3)15 11 
Gain (loss) reclassified from AOCI into interest income(7)(6)
(a)Approximately $15 million of pre-tax gains are expected to be reclassified into earnings in the next twelve months.

Other Derivatives
As part of the merger with IBKC, FHN acquired mortgage banking operations that include the origination and sale of loans into the secondary market. As part of the origination of loans, FHN enters into interest rate lock commitments with borrowers.

Additionally, FHN enters into forward sales contracts with buyers for delivery of loans at a future date. Both of these contracts qualify as freestanding derivatives and are recognized at fair value through earnings. The notional and fair values of these contracts are presented in the table below. Balances and activity for periods prior to the IBKC merger were not significant.
Table 8.22.6a-b
DERIVATIVES ASSOCIATED WITH MORTGAGE BANKING HEDGES
December 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Mortgage Banking Hedges
Option contracts written$241 $4 $ 
Forward contracts written404  


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Mortgage Banking Hedges
Option contracts written$667 $20 $— 
Forward contracts written725 — 
The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for the years ended December 31, 2021 and 2020:
Table 8.22.7
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH MORTGAGE BANKING HEDGES
 Year Ended
December 31,
20212020
(Dollars in millions)Gains (Losses)Gains (Losses)
Mortgage Banking Hedges
Option contracts written$15 $15 
Forward contracts written11 (37)
In conjunction with pre-2020 sales of Visa Class B shares, FHN entered into derivative transactions whereby FHN will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. As of December 31, 2021 and December 31, 2020, the derivative liabilities associated with the sales of Visa Class B shares were $23 million and $13 million, respectively. For the year ended December 31, 2021, FHN recognized $19 million in derivative valuation adjustments related to prior sales of Visa Class B shares. These derivative adjustments were insignificant for the year ended December 31, 2020. See Note 24 - Fair Value of Assets and Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.
FHN utilizes cross currency swaps and cross currency interest rate swaps to economically hedge its exposure to foreign currency risk and interest rate risk associated with non-U.S. dollar denominated loans. As of December 31, 2021 and 2020, these loans were valued at $7 million and $12 million, respectively. The balance sheet amount and the gains/losses associated with these derivatives were not significant.
Related to its loan participation/syndication activities, FHN enters into risk participation agreements, under which it assumes exposure for, or receives indemnification for, borrowers’ performance on underlying interest rate derivative contracts. FHN’s counterparties in these contracts are other lending institutions involved in the loan participation/syndication arrangements for which the underlying interest rate derivative contract is intended to hedge interest rate risk for the borrower. FHN will make (other institution is the lead bank) or receive (FHN is the lead bank) payments for risk participations if the borrower defaults on its obligation to perform under the terms of its interest rate derivative agreement with the lead bank in
the participation. As of December 31, 2021 and 2020, the notional values of FHN’s risk participations were $257 million and $233 million of derivative assets and $500 million and $464 million of derivative liabilities, respectively. The notional value for risk participation/syndication agreements is consistent with the percentage of participation in the lending arrangement. FHN’s maximum exposure or benefit in the risk participation agreements is contingent on the fair value of the underlying interest rate derivative contracts for which the borrower is in a liability position at the time of default. FHN monitors the credit risk associated with the borrowers to which the risk participations relate through the same credit risk assessment process utilized for establishing credit loss estimates for its loan portfolio. These credit risk estimates are included in the determination of fair value for the risk participations. Assuming all underlying third party customers referenced in the swap contracts defaulted at December 31, 2021 and 2020, the exposure from these agreements would not be material based on the fair value of the underlying swaps.
In conjunction with the IBKC merger, FHN obtained certain certificates of deposit with the rate of return based on an equity index which is considered an embedded derivative as a written option that must be separately recognized. The risks of the written option are offset by purchasing an option with terms that mirror the written option, which is also carried at fair value on the Company’s Consolidated Balance Sheets. As of December 31, 2021 and 2020, FHN had recognized $1 million of both assets and liabilities associated with these contracts.
Master Netting and Similar Agreements
FHN uses master netting agreements, mutual margining agreements and collateral posting requirements to minimize credit risk on derivative contracts. Master netting and similar agreements are used when


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
counterparties have multiple derivatives contracts that allow for a “right of setoff,” meaning that a counterparty may net offsetting positions and collateral with the same counterparty under the contract to determine a net receivable or payable. The following discussion provides an overview of these arrangements which may vary due to the derivative type and market in which a derivative transaction is executed.
Interest rate derivatives are subject to agreements consistent with standard agreement forms of the ISDA. Currently, all interest rate derivative contracts are entered into as over-the-counter transactions and collateral posting requirements are based on the net asset or liability position with each respective counterparty. For contracts that require central clearing, novation to a counterparty with access to a clearinghouse occurs and initial margin is posted. Cash margin received (posted) that is considered settlements for the derivative contracts is included in the respective derivative asset (liability) value. Cash margin that is considered collateral received (posted) for interest rate derivatives is recognized as a liability (asset) on FHN’s Consolidated Balance Sheet.
Interest rate derivatives with clients that are smaller financial institutions typically require posting of collateral by the counterparty to FHN. This collateral is subject to a threshold with daily adjustments based upon changes in the level or fair value of the derivative position. Positions and related collateral can be netted in the event of default. Collateral pledged by a counterparty is typically cash or securities. The securities pledged as collateral are not recognized within FHN’s Consolidated Balance Sheets. Interest rate derivatives associated with lending arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.
Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or First Horizon Bank is lowered, FHN could be required to post additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or First Horizon Bank is increased, FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s credit ratings were to decrease, FHN and/or First Horizon Bank could require the posting of additional collateral; whereas if a counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral. Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each counterparty.
The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral posting thresholds was $67 million of assets and $26 million of liabilities on December 31, 2021, and $200 million of assets and $5 million of liabilities on December 31, 2020. As of December 31, 2021 and 2020, FHN had received collateral of $205 million and $320 million and posted collateral of $14 million and $34 million, respectively, in the normal course of business related to these agreements.
Certain agreements entered into prior to required central clearing also contain accelerated termination provisions, inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt rating (including FHN’s and First Horizon Bank's) were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and require immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all interest rate derivative instruments with credit-risk-related contingent accelerated termination provisions was $74 million of assets and $30 million of liabilities on December 31, 2021, and $216 million of assets and $17 million of liabilities on December 31, 2020. As of December 31, 2021 and 2020, FHN had received collateral of $213 million and $343 million and posted collateral of $18 million and $53 million, respectively, in the normal course of business related to these contracts.
FHNF buys and sells various types of securities for its clients. When these securities settle on a delayed basis, they are considered forward contracts, and are generally not subject to master netting agreements. For futures and options, FHN transacts through a third party, and the transactions are subject to margin and collateral maintenance requirements. In the event of default, open positions can be offset along with the associated collateral.
For this disclosure, FHN considers the impact of master netting and other similar agreements which allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net derivative asset or liability position with the related securities and cash collateral. The application of the collateral cannot reduce the net derivative asset or liability position below zero, and therefore any excess collateral is not reflected in the following tables.
The following table provides details of derivative assets and collateral received as presented on the Consolidated Balance Sheets as of December 31, 2021 and 2020:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
Table 8.22.8
DERIVATIVE ASSETS & COLLATERAL RECEIVED
    Gross amounts not offset in the Balance Sheets 
(Dollars in millions)Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance Sheets
Net amounts of
assets presented
in the Balance Sheets (a)
Derivative liabilities
available for
offset
Collateral
received
Net amount
Derivative assets:
December 31, 2021
Interest rate derivative contracts$311 $ $311 $(32)$(181)$98 
Forward contracts12  12 (4)(3)5 
$323 $ $323 $(36)$(184)$103 
December 31, 2020
Interest rate derivative contracts$702 $— $702 $(7)$(327)$368 
Forward contracts63 — 63 (14)(20)29 
$765 $— $765 $(21)$(347)$397 
(a)Included in other assets on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $2 million and $4 million, respectively, of derivative assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.

The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Balance Sheets as of December 31, 2021 and 2020:
Table 8.22.9
DERIVATIVE LIABILITIES & COLLATERAL PLEDGED
Gross amounts not offset  in the Balance Sheets
(Dollars in millions)Gross amounts
of recognized
liabilities
Gross
 amounts
offset in the
Balance Sheets
Net amounts of
liabilities presented
in the Balance Sheets (a)
Derivative assets
available for
offset
Collateral
pledged
Net amount
Derivative liabilities:
December 31, 2021
Interest rate derivative contracts$93 $ $93 $(32)$(38)$23 
Forward contracts10  10 (4)(1)5 
$103 $ $103 $(36)$(39)$28 
December 31, 2020
Interest rate derivative contracts$60 $— $60 $(7)$(31)$22 
Forward contracts65 — 65 (14)(51)— 
$125 $— $125 $(21)$(82)$22 
(a)Included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $24 million and $22 million, respectively, of derivative liabilities (primarily Visa-related derivatives) have been excluded from these tables because they are generally not subject to master netting or similar agreements.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS
Note 23—Master Netting and Similar Agreements – Repurchase, Reverse Repurchase, and Securities Borrowing Transactions
For repurchase, reverse repurchase and securities borrowing transactions, FHN and each counterparty have the ability to offset all open positions and related collateral in the event of default. Due to the nature of these transactions, the value of the collateral for each transaction approximates the value of the corresponding receivable or payable. For repurchase agreements through FHN’s fixed income business (securities purchased under agreements to resell and securities sold under agreements to repurchase), transactions are collateralized by securities and/or government guaranteed loans which are delivered on the settlement date and are maintained throughout the term of the transaction. For FHN’s repurchase agreements through banking activities (securities sold under agreements to repurchase), securities are typically pledged at settlement and not released until maturity. For asset positions, the collateral is not included on FHN’s Consolidated Balance Sheets. For liability positions, securities collateral pledged by FHN is generally represented within FHN’s trading or available-for-sale securities portfolios.
For this disclosure, FHN considers the impact of master netting and other similar agreements that allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net asset or liability position with the related securities collateral. The application of the collateral cannot reduce the net asset or liability position below zero, and therefore any excess collateral is not reflected in the tables below.
Securities purchased under agreements to resell is included in federal funds sold and securities purchased under agreements to resell in the Consolidated Balance Sheets. Securities sold under agreements to repurchase is included in short-term borrowings.
The following table provides details of securities purchased under agreements to resell and collateral pledged by counterparties as of December 31, 2021 and 2020:
Table 8.23.1
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 
    Gross amounts not offset in the
Balance Sheets
 
(Dollars in millions)Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance Sheets
Net amounts of
assets presented
in the Balance Sheets
Offsetting
securities sold
under agreements
to repurchase
Securities collateral
(not recognized on
FHN’s Balance Sheets)
Net amount
Securities purchased under agreements to resell:
2021$488 $ $488 $(10)$(476)$2 
2020380 — 380 — (379)
The following table provides details of securities sold under agreements to repurchase and collateral pledged by FHN as of December 31, 2021 and 2020:
Table 8.23.2
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 
    Gross amounts not offset in the
Balance Sheets
 
(Dollars in millions)Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Balance Sheets
Net amounts of
liabilities presented
in the Balance Sheets
Offsetting securities
purchased under
agreements to resell
Securities/
government
guaranteed loans
collateral
Net amount
Securities sold under agreements to repurchase:
2021$1,247 $ $1,247 $(10)$(1,237)$ 
20201,187 — 1,187 — (1,187)— 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS
Due to the short duration of securities sold under agreements to repurchase and the nature of collateral involved, the risks associated with these transactions are considered minimal.
The following tables provide details, by collateral type, of the remaining contractual maturity of securities sold under agreements to repurchase as of December 31, 2021 and 2020:
Tables 8.23.3a-b
MATURITIES OF SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE  
 December 31, 2021
(Dollars in millions)Overnight and
Continuous
Up to 30 DaysTotal
Securities sold under agreements to repurchase:
U.S. treasuries$33 $ $33 
Government agency issued MBS1,068  1,068 
Other U.S. government agencies31  31 
Government guaranteed loans (SBA and USDA)115  115 
Total securities sold under agreements to repurchase$1,247 $ $1,247 
 December 31, 2020
(Dollars in millions)Overnight and
Continuous
Up to 30 DaysTotal
Securities sold under agreements to repurchase:
U.S. treasuries$284 $— $284 
Government agency issued MBS616 — 616 
Government agency issued CMO10 — 10 
Other U.S. government agencies151 — 151 
Government guaranteed loans (SBA and USDA)126 — 126 
Total securities sold under agreements to repurchase$1,187 $— $1,187 


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Note 24—Fair Value of Assets and Liabilities
FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:
Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the market.
Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.
Recurring Fair Value Measurements
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020: 



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Tables 8.24.1a-b
BALANCES OF ASSETS & LIABILITIES
MEASURED AT FAIR VALUE ON A RECURRING BASIS
 December 31, 2021
(Dollars in millions)Level 1Level 2Level 3Total
Trading securities:
U.S. treasuries$— $85 $— $85 
Government agency issued MBS— 464 — 464 
Government agency issued CMO— 62 — 62 
Other U.S. government agencies— 276 — 276 
States and municipalities— 34 — 34 
Corporate and other debt— 642 — 642 
Interest-only strips (elected fair value)— — 38 38 
Total trading securities— 1,563 38 1,601 
Loans held for sale (elected fair value)— 230 28 258 
Securities available for sale:
Government agency issued MBS— 5,055 — 5,055 
Government agency issued CMO— 2,257 — 2,257 
Other U.S. government agencies— 850 — 850 
States and municipalities— 545 — 545 
Total securities available for sale— 8,707 — 8,707 
Other assets:
Deferred compensation mutual funds125 — — 125 
Equity, mutual funds, and other25 — — 25 
Derivatives, forwards and futures12 — — 12 
Derivatives, interest rate contracts— 311 — 311 
Derivatives, other— — 
Total other assets162 312 — 474 
Total assets$162 $10,812 $66 $11,040 
Trading liabilities:
U.S. treasuries$— $334 $— $334 
Government issued agency MBS— — 
Corporate and other debt— 91 — 91 
Total trading liabilities— 426 — 426 
Other liabilities:
Derivatives, forwards and futures11 — — 11 
Derivatives, interest rate contracts— 93 — 93 
Derivatives, other— 23 24 
Total other liabilities11 94 23 128 
Total liabilities$11 $520 $23 $554 



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
December 31, 2020
(Dollars in millions)Level 1Level 2Level 3Total
Trading securities:
U.S. treasuries$— $81 $— $81 
Government agency issued MBS— 633 — 633 
Government agency issued CMO— 212 — 212 
Other U.S. government agencies— 62 — 62 
States and municipalities— — 
Corporate and other debt— 181 — 181 
Total trading securities— 1,176 — 1,176 
Loans held for sale (elected fair value)— 393 12 405 
Loans held for investment (elected fair value)— — 16 16 
Securities available for sale:
U.S. treasuries— 613 — 613 
Government agency issued MBS— 3,812 — 3,812 
Government agency issued CMO— 2,406 — 2,406 
Other U.S. government agencies— 684 — 684 
States and municipalities— 460 — 460 
Corporate and other debt— 40 — 40 
Interest-only strips (elected fair value)— — 32 32 
Total securities available for sale— 8,015 32 8,047 
Other assets:
Deferred compensation mutual funds118 — — 118 
Equity, mutual funds, and other25 — — 25 
Derivatives, forwards and futures63 — — 63 
Derivatives, interest rate contracts— 702 — 702 
Derivatives, other— — 
Total other assets206 706 — 912 
Total assets$206 $10,290 $60 $10,556 
Trading liabilities:
U.S. treasuries$— $307 $— $307 
Government agency issued MBS— — 
Corporate and other debt— 43 — 43 
Total trading liabilities— 353 — 353 
Other liabilities:
Derivatives, forwards and futures71 — — 71 
Derivatives, interest rate contracts— 60 — 60 
Derivatives, other— 14 18 
Total other liabilities71 64 14 149 
Total liabilities$71 $417 $14 $502 


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Changes in Recurring Level 3 Fair Value Measurements
The changes in Level 3 assets and liabilities measured at fair value for the years ended December 31, 2021, 2020 and 2019 on a recurring basis are summarized as follows: 
Tables 8.24.2a-b-c
CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE
 Year Ended December 31, 2021 
(Dollars in millions)Interest-only stripsLoans held for saleLoans held for investmentNet  derivative
liabilities
 
Balance on January 1, 2021$32 $12 $16 $(14)
Total net gains (losses) included in net income— (19)
Purchases— 10 — — 
Sales(68)(18)— — 
Settlements— (3)(2)10 
Net transfers into (out of) Level 371 (b)26 (e)(14)(e)— 
Balance on December 31, 2021$38 $28 $— $(23)
Net unrealized gains (losses) included in net income$(2)(c)$(a)$— $(19)(d)
 Year Ended December 31, 2020 
(Dollars in millions)Trading
securities
 Interest-only strips- AFSLoans held for sale Loans held for investmentNet  derivative
liabilities
 
Balance on January 1, 2020$$19 $14 $— $(23)
Acquired— — — 14 — 
Total net gains (losses) included in net income(1)(6)— (1)
Purchases— — — — 
Sales— (11)— (4)— 
Settlements— — (3)(3)10 
Net transfers into (out of) Level 3— 24 (b)— — 
Balance on December 31, 2020$— $32 $12  $16 $(14)
Net unrealized gains (losses) included in net income$— (a)$(4)(c)$(a)$— $(1)(d)
 Year Ended December 31, 2019
(Dollars in millions)Trading
securities
 Interest-only strips- AFSLoans held for sale Net  derivative
liabilities
Balance on January 1, 2019$$10 $16 $(32)
Total net gains (losses) included in net income— (5)(4)
Purchases— — — — 
Sales— (47)— — 
Settlements(1)— (4)13 
Net transfers into (out of) Level 3— 61 (b)— — 
Balance on December 31, 2019$$19 $14 $(23)
Net unrealized gains (losses) included in net income$— (a)$(2)(c)$(a)$(4)(d)
(a)Primarily included in mortgage banking and title income on the Consolidated Statements of Income.
(b)Transfers into interest-only strips level 3 measured on a recurring basis reflect movements from loans held for sale (Level 2 nonrecurring).
(c)Primarily included in fixed income on the Consolidated Statements of Income.
(d)Included in other expense.
(e)The loans held for investment at fair value option portfolio was transferred to the loans held for sale portfolio on April 1, 2021.



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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
There were no net unrealized gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of December 31, 2021, 2020 and 2019.
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the
application of lower of cost or market (LOCOM) accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the Consolidated Balance Sheets at December 31, 2021, 2020 and 2019, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value. 
Tables 8.24.3a-b-c
LEVEL OF VALUATION ASSUMPTIONS FOR ASSETS
MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS
 Carrying value at December 31, 2021Year Ended December 31, 2021
(Dollars in millions)Level 1Level 2Level 3TotalNet gains (losses)
Loans held for sale—SBAs and USDA$— $852 $$853 $(2)
Loans held for sale—first mortgages— — — 
Loans and leases (a)— — 84 84 (13)
OREO (b)— — (1)
Other assets (c)— — 30 30 (2)
$(18)
 Carrying value at December 31, 2020Year Ended December 31, 2020
(Dollars in millions)Level 1Level 2Level 3TotalNet gains (losses)
Loans held for sale—SBAs and USDA$— $508 $$509 $(3)
Loans held for sale—first mortgages— — — 
Loans and leases (a)— — 77 77 (12)
OREO (b)— — 15 15 (1)
Other assets (c)— — (2)
$(18)
 Carrying value at December 31, 2019Year Ended December 31, 2019
(Dollars in millions) Level 1Level 2Level 3TotalNet gains (losses)
Loans held for sale—SBAs and USDA$— $493 $$494 $(2)
Loans held for sale—first mortgages— — — 
Loans and leases (a)— — 42 42 (7)
OREO (b)— — 16 16 (1)
Other assets (c)— — 11 11 (2)
$(12)
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.

In 2021, FHN recognized $34 million of fixed asset impairments and $3 million of leased asset impairments. In 2020, FHN recognized $7 million of fixed asset impairments and $6 million of leased asset impairments. These impairments were primarily related to continuing acquisition integration efforts associated with reduction of
leased office space and banking center optimization. These amounts were primarily recognized in the Corporate segment.

In 2019, FHN recognized $4 million of impairments related to dispositions of acquired properties and $1 million of


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
leased asset impairments related to continuing acquisition integration efforts associated with reduction of leased office space and banking center optimization. Related to its restructuring, repositioning, and efficiency efforts, FHN recognized $13 million of impairments for tangible long-lived assets and lease assets. Related to its rebranding initiative, FHN recognized $7 million of impairments for long-lived tangible assets, primarily signage. These amounts were primarily recognized in the Corporate segment.

Lease asset impairments recognized represent the reduction in value of the right-of-use assets associated with leases that are being exited in advance of the contractual lease expiration.
Impairments are measured using a discounted cash flow methodology, which is considered a Level 3 valuation.
Impairments of long-lived tangible assets reflect locations where the associated land and building are either owned
or leased. The fair values of owned sites were determined using estimated sales prices from appraisals and broker opinions less estimated costs to sell with adjustments upon final disposition. The fair values of owned assets in leased sites (e.g., leasehold improvements) were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations. Impairment adjustments recognized upon disposition of a location are considered Level 2 valuations.
Level 3 Measurements
The following tables provide information regarding the unobservable inputs utilized in determining the fair value of Level 3 recurring and non-recurring measurements as of December 31, 2021 and 2020:  


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Tables 8.24.4a-b
UNOBSERVABLE INPUTS USED
IN LEVEL 3 FAIR VALUE MEASUREMENTS
(Dollars in millions)Values Utilized
Level 3 ClassFair Value at December 31, 2021Valuation TechniquesUnobservable InputRangeWeighted Average (d)
Trading securities - SBA interest-only strips$38 Discounted cash flowConstant prepayment rate
11%-12%
11%
Bond equivalent yield
11% - 14%
11%
Loans held for sale - residential real estate$29 Discounted cash flowPrepayment speeds - First mortgage
4% - 12%
5%
Foreclosure losses
54% - 66%
65%
Loss severity trends - First mortgage
1% - 14% of UPB
8%
Loans held for sale - unguaranteed interest in SBA loans$Discounted cash flowConstant prepayment rate
8% - 12%
10%
Bond equivalent yield11%11%
Derivative liabilities, other$23 Discounted cash flowVisa covered litigation resolution amount
$5.8 billion - $6.2 billion
$6.0 billion
Probability of resolution scenarios
15% - 35%
24%
 Time until resolution
12 - 36 months
25 months
Loans and leases (a)$84 Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 10% of appraisal
NM
Other collateral valuationsBorrowing base certificates adjustment
20% - 50% of gross value
NM
 Financial Statements/Auction values adjustment
0% - 25% of reported value
NM
OREO (b)$Appraisals from comparable propertiesAdjustment for value changes since appraisal
0% - 10% of appraisal
NM
Other assets (c)$30 Discounted cash flowAdjustments to current sales yields for specific properties
0% - 15% adjustment to yield
NM
  Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 25% of appraisal
NM
NM - Not meaningful
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.



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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
(Dollars in millions)Values Utilized
Level 3 ClassFair Value at December 31, 2020Valuation TechniquesUnobservable InputRangeWeighted Average (d)
Securities - SBA interest-only strips$32 Discounted cash flowConstant prepayment rate12%12%
Bond equivalent yield
15% - 17%
15%
Loans held for sale - residential real estate$13 Discounted cash flowPrepayment speeds - First mortgage
5% - 15%
5%
Foreclosure losses
59% - 70%
63%
Loss severity trends - First mortgage
3% - 19% of UPB
12%
Loans held for sale - unguaranteed interest in SBA loans$Discounted cash flowConstant prepayment rate
8% - 12%
10%
Bond equivalent yield
7%-8%
7%
Loans held for investment$16 Discounted cash flowConstant prepayment rate
0% - 26%
11%
Constant default rate
0%-14%
1%
Loss severity trends
0% - 100%
11%
Derivative liabilities, other$14 Discounted cash flowVisa covered litigation resolution amount
$5.4 billion - $6.0 billion
$5.8 billion
Probability of resolution scenarios
10% - 50%
16%
Time until resolution
3 - 27 months
19 months
Loans and leases (a)$77 Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 10% of appraisal
NM
Other collateral valuationsBorrowing base certificates adjustment
20% - 50% of gross value
NM
Financial Statements/Auction values adjustment
0% - 25% of reported value
NM
OREO (b)$15 Appraisals from comparable propertiesAdjustment for value changes since appraisal
0% - 10% of appraisal
NM
Other assets (c)$Discounted cash flowAdjustments to current sales yields for specific properties
0% - 15% adjustment to yield
NM
Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 25% of appraisal
NM
NM - Not meaningful
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.

Trading Securities - SBA interest-only strips
Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the
value of SBA interest-only strips. Management additionally considers whether the loans underlying related SBA



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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
interest-only strips are delinquent, in default or prepaying, and adjusts the fair value down 20 - 100% depending on the length of time in default. SBA interest-only strips were transferred from AFS to trading securities on October 1, 2021.
Loans held for sale
Foreclosure losses and prepayment rates are significant unobservable inputs used in the fair value measurement of FHN’s residential real estate loans held for sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. All observable and unobservable inputs are re-assessed quarterly.
Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of unguaranteed interests in SBA loans. Unguaranteed interest in SBA loans held for sale are carried at less than the outstanding balance due to credit risk estimates. Credit risk adjustments may be reduced if prepayment is likely or as consistent payment history is realized. Management also considers other factors such as delinquency or default and adjusts the fair value accordingly.
Loans held for investment
Constant prepayment rate, constant default rate and loss severity trends are significant unobservable inputs used in the fair value measurement of loans held for investment. Increases (decreases) in each of these inputs in isolation result in negative (positive) effects on the valuation of the associated loans.
Derivative liabilities
In conjunction with pre-2020 sales of Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios
would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures.
Loans and leases and Other Real Estate Owned
Collateral-dependent loans and OREO are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates.
Other assets – tax credit investments
The estimated fair value of tax credit investments accounted for under the equity method is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments which typically includes consideration of the underlying property’s appraised value.
Fair Value Option
FHN has elected the fair value option on a prospective basis for substantially all types of mortgage loans originated for sale purposes except for mortgage origination operations which utilize the platform acquired from CBF. FHN determined that the election reduces certain timing differences and better matches changes in the value of such loans with changes in the value of derivatives and forward delivery commitments used as economic hedges for these assets at the time of election.
Repurchased loans relating to mortgage banking operations conducted prior to the IBKC merger are recognized within loans held for sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent values from exceeding the initial fair value, determined at the time of repurchase, but would require recognition of subsequent declines in value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value.
FHN also had a portion of mortgage loans held for investment for which the fair value option was elected
upon origination and which were accounted for at fair value. This portion of mortgage loans held for investment at fair value option was transferred to the loans held for sale portfolio on April 1, 2021.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans held for sale and held for investment measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.
Tables 8.24.5a-b
DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS
AND CONTRACTUAL AMOUNTS OF RESIDENTIAL REAL ESTATE LOANS
 December 31, 2021
(Dollars in millions)Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
Residential real estate loans held for sale reported at fair value:
Total loans$258 $264 $(6)
Nonaccrual loans(3)
 December 31, 2020
(Dollars in millions)Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
Residential real estate loans held for sale reported at fair value:
Total loans$405 $442 $(37)
Nonaccrual loans(3)
Loans held for investment reported at fair value:
Total loans16 17 (1)
Nonaccrual loans— 
Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for
which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table: 
Table 8.24.6
CHANGES IN FAIR VALUE RECOGNIZED IN NET INCOME
 Year Ended December 31,
(Dollars in millions)202120202019
Changes in fair value included in net income:
Mortgage banking and title noninterest income
Loans held for sale$(10)$$
For the years ended December 31, 2021, 2020 and 2019, the amount for residential real estate loans held for sale included an insignificant amount of gains in pretax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income
section of the Consolidated Statements of Income as interest on loans held for sale.
FHN has elected to account for retained interest-only strips from guaranteed SBA loans recorded in trading securities at fair value through earnings. Since these securities are subject to the risk that prepayments may result in FHN not recovering all or a portion of its recorded investment, the fair value election results in a more timely recognition of the effects of estimated prepayments through earnings rather than being recognized through


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
other comprehensive income with periodic review for other-than-temporary impairment. Gains or losses are recognized through fixed income revenues and are presented in the recurring measurements table.
Determination of Fair Value
Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the Consolidated Balance Sheets and for estimating the fair value of financial instruments for which fair value is disclosed.
Short-term financial assets
Federal funds sold, securities purchased under agreements to resell, and interest-bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Trading securities and trading liabilities
Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, benchmark yields, credit spreads and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap rates, mortgage rates, and consensus prepayment speeds.
Trading securities - SBA interest-only strips
Interest-only strips are valued at elected fair value based on an income approach using an internal valuation model. The internal valuation model includes assumptions regarding projections of future cash flows, prepayment rates, default rates and interest-only strip terms. These securities bear the risk of loan prepayment or default that may result in FHN not recovering all or a portion of its recorded investment. When appropriate, valuations are adjusted for various factors including default or prepayment status of the underlying SBA loans. Because of the inherent uncertainty of valuation, those estimated values may be higher or lower than the values that would have been used had a ready market for the securities existed, and may change in the near term. SBA interest-
only strips were transferred from AFS to trading on October 1, 2021.
Securities available for sale and held to maturity
Valuations of debt securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include benchmark yields, consensus prepayment speeds and credit spreads. Trades from similar securities and broker quotes are used to support these valuations.
Loans held for sale
FHN determines the fair value of loans held for sale using either current transaction prices or discounted cash flow models. Fair values are determined using current transaction prices and/or values on similar assets when available, including committed bids for specific loans or loan portfolios. Uncommitted bids may be adjusted based on other available market information.
Fair value of residential real estate loans held for sale determined using a discounted cash flow model incorporates both observable and unobservable inputs. Inputs in the discounted cash flow model include current mortgage rates for similar products, estimated prepayment rates, foreclosure losses, and various loan performance measures (delinquency, LTV, credit score). Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model’s discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimated cancellation rates for loans expected to become delinquent.
Non-mortgage consumer loans held for sale are valued using committed bids for specific loans or loan portfolios or current market pricing for similar assets with adjustments for differences in credit standing (delinquency, historical default rates for similar loans), yield, collateral values and prepayment rates. If pricing for similar assets is not available, a discounted cash flow methodology is utilized, which incorporates all of these factors into an estimate of investor required yield for the discount rate.
FHN utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. FHN values SBA-unguaranteed interests in loans held for sale based on individual loan characteristics, such as industry type and pay history which generally follows an income approach. Furthermore, these valuations are adjusted for changes in prepayment estimates and are reduced due to restrictions on trading. The fair value of other non-residential real estate loans held for sale is approximated by their carrying values based on current transaction values.


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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Mortgage loans held for investment at fair value option
The fair value of mortgage loans held for investment at fair value option is determined by a third party using a discounted cash flow model using various assumptions about future loan performance (constant prepayment rate, constant default rate and loss severity trends) and market discount rates.
Loans held for investment
The fair values of mortgage loans are estimated using an exit price methodology that is based on present values using the interest rate that would be charged for a similar loan to a borrower with similar risk, weighted for varying maturity dates and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
Other loans and leases are valued based on present values using the interest rate that would be charged for a similar instrument to a borrower with similar risk, applicable to each category of instruments, and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.
Derivative assets and liabilities
The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate contracts) are based on inputs observed in active markets for similar instruments. Typically inputs include benchmark yields, option volatility and option skew. Starting in October 2020, centrally cleared derivatives are discounted using SOFR as required by clearinghouses. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. For derivative contracts with daily cash margin requirements that are considered settlements, the daily margin amount is netted within derivative assets or liabilities. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional
factors such as client loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. The determination of fair value for FHN’s derivative liabilities associated with its prior sales of Visa Class B shares are classified within Level 3 in the fair value measurements disclosure as previously discussed in the unobservable inputs discussion.
The fair value of risk participations is determined in reference to the fair value of the related derivative contract between the borrower and the lead bank in the participation structure, which is determined consistent with the valuation process discussed above. This value is adjusted for the pro rata portion of the reference derivative’s notional value and an assessment of credit risk for the referenced borrower.
OREO
OREO primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal.
Other assets
For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation mutual funds and equity investments (including other mutual funds) with readily determinable fair values. Tax credit investments accounted for under the equity method are written down to estimated fair value quarterly based on the estimated value of the associated tax credits which incorporates estimates of required yield for hypothetical investors. The fair value of all other tax credit investments is estimated using recent transaction information with adjustments for differences in individual investments. Deferred compensation mutual funds are recognized at fair value, which is based on quoted prices in active markets.
Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Balance Sheets which is considered to approximate fair value. Investments in mutual funds are measured at the funds’ reported closing net asset values. Investments in equity securities are valued using quoted market prices when available.
Defined maturity deposits
The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Short-term financial liabilities
The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Loan commitments
Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Other commitments
Fair values of these commitments are based on fees charged to enter into similar agreements.
The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, reduces the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans and leases, loans held for sale, and term borrowings as of December 31, 2021 and December 31, 2020, involve the use of significant internally-developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure
are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans and TRUPS loans within the Corporate segment, are influenced by changes in economic conditions since origination and risk perceptions of the financial sector. These considerations affect the estimate of a potential acquirer’s cost of capital and cash flow volatility assumptions from these assets and the resulting fair value measurements may depart significantly from FHN’s internal estimates of the intrinsic value of these assets.
Assets and liabilities that are not financial instruments have not been included in the following table such as the value of long-term relationships with deposit and trust clients, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Additionally, these measurements are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN.
The following tables summarize the book value and estimated fair value of financial instruments recorded in the Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020:


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
Tables 8.24.7a-b
BOOK VALUE AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
December 31, 2021
 Book
Value
Fair Value
(Dollars in millions) Level 1Level 2Level 3Total
Assets:
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial$30,734 $— $— $31,020 $31,020 
Commercial real estate11,955 — — 11,986 11,986 
Consumer:
Consumer real estate 10,609 — — 11,111 11,111 
Credit card and other891 — — 906 906 
Total loans and leases, net of allowance for loan and lease losses54,189 — — 55,023 55,023 
Short-term financial assets:
Interest-bearing deposits with banks14,907 14,907 — — 14,907 
Federal funds sold153 — 153 — 153 
Securities purchased under agreements to resell488 — 488 — 488 
Total short-term financial assets15,548 14,907 641 — 15,548 
Trading securities (a)1,601 — 1,563 38 1,601 
Loans held for sale:
Mortgage loans (elected fair value) (a)258 — 230 28 258 
USDA & SBA loans - LOCOM853 — 855 856 
Other loans - LOCOM24 — 24 — 24 
Mortgage loans - LOCOM37 — — 37 37 
Total loans held for sale1,172 — 1,109 66 1,175 
Securities available for sale (a) 8,707 — 8,707 — 8,707 
Securities held to maturity712 — 705 — 705 
Derivative assets (a)324 12 312 — 324 
Other assets:
Tax credit investments456 — — 450 450 
Deferred compensation mutual funds125 125 — — 125 
Equity, mutual funds, and other (b)257 25 — 232 257 
Total other assets838 150 — 682 832 
Total assets$83,091 $15,069 $13,037 $55,809 $83,915 
Liabilities:
Defined maturity deposits$3,500 $— $3,524 $— $3,524 
Trading liabilities (a)426 — 426 — 426 
Short-term financial liabilities:
Federal funds purchased775 — 775 — 775 
Securities sold under agreements to repurchase1,247 — 1,247 — 1,247 
Other short-term borrowings102 — 102 — 102 
Total short-term financial liabilities2,124 — 2,124 — 2,124 
Term borrowings:
Real estate investment trust-preferred46 — — 47 47 
Term borrowings—new market tax credit investment59 — — 58 58 
Secured borrowings— — 
Junior subordinated debentures148 — — 150 150 
Other long term borrowings1,331 — 1,452 — 1,452 
Total term borrowings1,590 — 1,452 261 1,713 
Derivative liabilities (a)128 11 94 23 128 
Total liabilities$7,768 $11 $7,620 $284 $7,915 
(a)Classes are detailed in the recurring and nonrecurring measurement tables.
(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $29 million and FRB stock of $203 million.


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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
 December 31, 2020
 Book
Value
Fair Value
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial$32,651 $— $— $32,582 $32,582 
Commercial real estate12,033 — — 12,079 12,079 
Consumer:
Consumer real estate11,483 — — 11,903 11,903 
Credit card and other1,102 — — 1,131 1,131 
Total loans and leases, net of allowance for loan and lease losses57,269 — — 57,695 57,695 
Short-term financial assets:
Interest-bearing deposits with banks8,351 8,351 — — 8,351 
Federal funds sold65 — 65 — 65 
Securities purchased under agreements to resell380 — 380 — 380 
Total short-term financial assets8,796 8,351 445 — 8,796 
Trading securities (a)1,176 — 1,176 — 1,176 
Loans held for sale:
Mortgage loans (elected fair value) (a)405 — 393 12 405 
USDA & SBA loans - LOCOM509 — 511 512 
Other loans - LOCOM31 — 31 — 31 
Mortgage loans - LOCOM77 — — 77 77 
Total loans held for sale1,022 — 935 90 1,025 
Securities available for sale (a) 8,047 — 8,015 32 8,047 
Securities held to maturity10 — — 10 10 
Derivative assets (a)769 63 706 — 769 
Other assets:
Tax credit investments400 — — 371 371 
Deferred compensation mutual funds118 118 — — 118 
Equity, mutual funds, and other (b)288 25 — 263 288 
Total other assets806 143 — 634 777 
Total assets$77,895 $8,557 $11,277 $58,461 $78,295 
Liabilities:
Defined maturity deposits$5,070 $— $5,083 $— $5,083 
Trading liabilities (a)353 — 353 — 353 
Short-term financial liabilities:
Federal funds purchased845 — 845 — 845 
Securities sold under agreements to repurchase1,187 — 1,187 — 1,187 
Other short-term borrowings166 — 166 — 166 
Total short-term financial liabilities2,198 — 2,198 — 2,198 
Term borrowings:
Real estate investment trust-preferred46 — — 47 47 
Term borrowings—new market tax credit investment45 — — 45 45 
Secured borrowings15 — — 15 15 
Junior subordinated debentures238 — — 223 223 
Other long term borrowings1,326 — 1,455 — 1,455 
Total term borrowings1,670 — 1,455 330 1,785 
Derivative liabilities (a)149 71 64 14 149 
Total liabilities$9,440 $71 $9,153 $344 $9,568 
(a)Classes are detailed in the recurring and nonrecurring measurement tables.
(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $61 million and FRB stock of $202 million.



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of December 31, 2021 and December 31, 2020:
Table 8.24.8
UNFUNDED COMMITMENTS
 Contractual AmountFair Value
(Dollars in millions)December 31, 2021December 31, 2020December 31, 2021December 31, 2020
Unfunded Commitments:
Loan commitments$24,229 $20,796 $1 $
Standby and other commitments810 751 6 



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 25—RESTRUCTURING, REPOSITIONING, & EFFICIENCY
Note 25—Restructuring, Repositioning, and Efficiency
Beginning in 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base to improve profitability and create capacity to reinvest savings into technology and revenue production activities. Restructuring, repositioning, and efficiency charges related to these corporate-driven actions were not significant in 2021 and 2020 and were $40 million in 2019. These expenses are included in the Corporate segment. Significant expenses resulted from the following actions:
Severance and other employee costs primarily related to efficiency initiatives within corporate and bank services functions which are classified as personnel expense within noninterest expense.
Expense largely related to the identification of efficiency opportunities within the organization which is reflected in legal and professional fees.
Expense related to costs associated with asset impairments which is reflected in other expense.
Settlement of the obligations arising from current initiatives will be funded from operating cash flows.
Total expense recognized for the year ended December 31, 2019 is presented in the table below:

Table 8.25.1
RESTRUCTURING, REPOSITIONING, & EFFICIENCY EXPENSES
(Dollars in millions)Year Ended December 31, 2019
Personnel expense$11 
Legal and professional fees16 
Net occupancy expense
Other12 
Total restructuring, repositioning, and efficiency charges$40 



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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 26—PARENT COMPANY FINANCIAL INFORMATION
Note 26—Parent Company Financial Information
Following are statements of the parent company:
Parent Company Balance Sheets
Balance SheetsDecember 31,
(Dollars in millions)20212020
Assets:  
Cash$724 $827 
Notes receivable3 
Investments in subsidiaries:
Bank8,381 8,176 
Non-bank65 88 
Other assets291 274 
Total assets$9,464 $9,368 
Liabilities and equity:  
Accrued employee benefits and other liabilities$321 $322 
Term borrowings944 1,034 
Total liabilities1,265 1,356 
Total equity8,199 8,012 
Total liabilities and equity$9,464 $9,368 
Parent Company Statements of Income
Year Ended December 31,
(Dollars in millions)202120202019
Dividend income:   
Bank$770 $180 $345 
Non-bank — 
Total dividend income770 180 346 
Other income (loss)(26)— 
Total income744 180 347 
Provision (provision credit) for credit losses — (1)
Interest expense - term borrowings31 39 31 
Personnel and other expense89 54 53 
Total expense120 93 83 
Income before income taxes624 87 264 
Income tax benefit(35)(18)(19)
Income before equity in undistributed net income of subsidiaries659 105 283 
Equity in undistributed net income (loss) of subsidiaries:   
Bank332 736 160 
Non-bank8 (2)
Net income attributable to the controlling interest$999 $845 $441 






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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 26—PARENT COMPANY FINANCIAL INFORMATION
Parent Company Statements of Cash Flows
(Dollars in millions)202120202019
Operating activities:
Net income$999 $845 $441 
Less undistributed net income of subsidiaries340 740 158 
Income before undistributed net income of subsidiaries659 105 283 
Adjustments to reconcile income to net cash provided by operating activities:
    Depreciation, amortization, and other — (1)
    (Gain) loss on derivative transactions — 
    Deferred income tax expense8 
    Stock-based compensation expense43 32 22 
    Loss on extinguishment of debt26 — — 
    Other operating activities, net(11)21 28 
Total adjustments66 62 53 
Net cash provided by operating activities725 167 336 
Investing activities:
Proceeds from sales and prepayments of securities 3 — 
Purchases of securities(10)(5)— 
(Investment in) return on subsidiary8 (2)— 
Cash received for business combination, net 103 — 
Net cash provided by (used in) investing activities1 96 
Financing activities:
Proceeds from issuance of preferred stock145 144 — 
Call of preferred stock(100)— — 
Cash dividends paid - preferred stock(33)(17)(6)
Common stock:
    Stock options exercised 28 
    Cash dividends paid(333)(222)(171)
    Repurchase of shares(416)(4)(134)
Proceeds from issuance of term borrowings 795 — 
Repayment of term borrowings(120)(500)— 
Other financing activities, net (8)— 
Net cash provided by (used in) financing activities(829)195 (302)
Net increase (decrease) in cash and cash equivalents(103)458 35 
Cash and cash equivalents at beginning of year827 369 334 
Cash and cash equivalents at end of year$724 $827 $369 
Total interest paid$35 $33 $29 
Income taxes received from subsidiaries28 33 43 







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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of ContentsNOTE 27—SUBSEQUENT EVENTS
Note 27—Subsequent Events
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the “First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 28, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).
In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Proposed TD Merger.
Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021.


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ITEM 9. ACCOUNTANTS, ITEM 9A. CONTROLS & PROCEDURES, ITEM 9B. OTHER INFO, AND ITEM 9C. FOREIGN INSPECTIONS
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

Item 9A.    Controls and Procedures
Evaluation of Disclosure Controls & Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Reports on Internal Control over Financial Reporting
The report of management required by Item 308(a) of Regulation S-K appears at page 109, and the attestation report required by Item 308(b) of Regulation S-K appears
starting at page 110, of our 2021 Financial Statements (Item 8). Both are incorporated herein by this reference.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

Item 9B.    Other Information
Not applicable.


Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.


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ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
PART III


Item 10.    Directors and Executive Officers of the Registrant
Required Item 10 Information
In 2021 there were no material amendments to the procedures, described in our 2022 Proxy Statement under the caption Shareholder Recommendations of Director Nominees; Shareholder Nominations, by which security holders may recommend nominees to our Board of Directors.
Our bylaws contain a process, if certain conditions are met, for a shareholder to nominate a person for election to the Board in advance of an annual meeting, and to require us to include that nomination in our annual meeting proxy statement. Additional information regarding this process is available in our 2022 Proxy Statement under the captions Shareholder Recommendations of Director Nominees; Shareholder Nominations and 2023 Annual Meeting—Proposal & Nomination Deadlines, which information is incorporated herein by reference.
Our Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Chief Executive Officer, Chief Financial Officer, and Chief
Accounting Officer and also applies to all professionals serving in the financial, accounting, or audit areas of FHN and its subsidiaries. A copy of the Code has been filed or incorporated by reference as Exhibit 14 to this report and is posted on our current internet website (at www.firsthorizon.com: click on “Investor Relations,” at the bottom of the web page, then hover over the Investor Relations box at the top of the page, then hover over “Corporate Governance,” and lastly click on “Governance Documents.”) A paper copy of the Code is available without charge upon written request addressed to our Corporate Secretary at our main office, 165 Madison Avenue, Memphis, Tennessee 38103. We intend to satisfy our disclosure obligations under Item 5.05 of Form 8-K related to Code amendments or waivers by posting such information on our internet website, the address for which is listed in this paragraph above.
Other information required by this Item related to the topics mentioned in Table 10.1 is incorporated herein by reference to the disclosures indicated in the Table.

Table 10.1
ITEM 10 TOPICS TABLE
Item 10 TopicsIncorporated Disclosures
Directors and nominees for director of FHN, the Audit Committee of our Board of Directors, members of the Audit Committee, and Audit Committee financial experts
In our 2022 Proxy Statement: Independence & Categorical Standards, Committee Charters & Composition, Audit Committee, and Vote Item 1—Election of Directors (excluding the Audit Committee Report and the statements regarding the existence and location of the Audit Committee’s charter)
Executive officers
In the Supplemental Part I Information following Item 4 of this report: Executive Officers of the Registrant, beginning on page 56
Compliance with Section 16(a) of the Securities Exchange Act of 1934
In our 2022 Proxy Statement: Delinquent Section 16(a) Reports




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ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
First Horizon Directors

Table 10.2
OUR BOARD OF DIRECTORS
(at February 20, 2022)
Harry V. Barton, Jr.
Age 67
CPA and Owner,
Barton Advisory Services, LLC,
an investment advisory firm
Kenneth A. Burdick
Age 63
Retired Executive Vice President,
Products and Markets,
Centene Corporation,
a healthcare services company
Daryl G. Byrd
Age 67
Executive Chairman of the Board,
First Horizon Corporation,
a financial services company
John N. Casbon
Age 73
Executive Vice President,
First American Title Insurance Company,
a title insurance company
John C. Compton
Age 60
Partner,
Clayton, Dubilier & Rice, LLC
a private equity firm
Wendy P. Davidson
Age 52
President-Americas for the Performance Nutrition segment of Ireland-based Glanbia plc,
a global nutrition company
William H. Fenstermaker
Age 73
Chairman and CEO,
C.H. Fenstermaker and Associates, LLC,
a surveying, mapping, engineering, and environmental consulting company
D. Bryan Jordan
Age 60
President and
Chief Executive Officer,
First Horizon Corporation,
a financial services company
J. Michael Kemp, Sr.
Age 51
Founder and Chief Executive Officer,
Kemp Management Solutions,
a program management and
consulting firm
Rick E. Maples
Age 63
Retired Co-Head of Investment Banking,
Stifel, Nicolaus and Company, Incorporated,
a financial services company
Vicki R. Palmer
Age 68
President,
The Palmer Group, LLC
a general consulting firm
Colin V. Reed
Age 74
Chairman of the Board and
Chief Executive Officer,
Ryman Hospitality Properties, Inc.
a real estate investment trust
E. Stewart Shea III
Age 70
Private Investor
Cecelia D. Stewart
Age 63
Retired President, U.S. Consumer & Commercial Banking,
Citigroup, Inc.
a financial services company
Rajesh Subramaniam
Age 56
President and
Chief Operating Officer,
FedEx Corporation
a provider of transportation, e-commerce, and business services
Rosa Sugrañes
Age 64
Founder and former
Chief Executive Officer,
Iberia Tiles,
a ceramic tile distributor
R. Eugene Taylor
Age 74
Retired Chairman of the Board and
Chief Executive Officer,
Capital Bank Financial Corp.,
a financial services company



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ITEM 11. EXECUTIVE COMPENSATION
Item 11.    Executive Compensation
The information called for by this Item is incorporated herein by reference to the following sections of our 2022 Proxy Statement: Compensation Committee, Compensation Committee Interlocks & Insider Participation, Director Compensation, Compensation Discussion & Analysis, Recent Compensation, Post-Employment Compensation, Pay Ratio of CEO to Median Employee, and each Appendix to our Proxy Statement referenced in those sections.
The sub-section of our 2022 Proxy Statement captioned Compensation Risk, within the Compensation Committee section, provides information concerning our management of certain risks associated with our
compensation policies and practices. We do not believe those risks are reasonably likely to have a material adverse effect upon us; accordingly, we do not believe that information is required to be provided in this Item.
The information required by Item 407(e)(5) of Regulation S-K is provided in our 2022 Proxy Statement within the Compensation Committee section under the sub-section captioned Compensation Committee Report. As permitted by the instructions for that Item, the information under that sub-section is not “filed” with this report.


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ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
Table 12.1 provides information as of December 31, 2021 regarding shares of our common stock that may be issued under the following plans:
2021 Incentive Plan ("2021 Plan")
Equity Compensation Plan (“ECP”)
IBERIABANK Corporation 2019 Stock Incentive Plan ("SIP")
1997 Employee Stock Option Plan (“1997 Plan”)
2002 and 1996 Bank Director and Advisory Board Member Deferral Plans (“Advisory Board Plans”)
2000 Non-employee Directors’ Deferred Compensation Stock Option Plan (“2000 Directors’ Plan”)
The following IBERIABANK Corporation plans (together with the SIP, the “IBKC Plans”): 2016 Stock Incentive Plan; and Amended and Restated 2010 Stock Incentive Plan
The following Capital Bank Financial Corp. plans (“CBF Plans”): Capital Bank Financial Corp. 2013 Omnibus Compensation Plan; and FNB United Corp. 2012 Incentive Plan

Table 12.1
EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 2021
ABC
Plan CategoryNumber of Securities to be Issued upon Exercise of Outstanding Options (1)Weighted Average Exercise Price of Outstanding Options (1)Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in Col. A)
Equity Compensation Plans Approved by Shareholders (2)4,741,471 (3)$15.5612,329,976 
Equity Compensation Plans Not Approved by Shareholders (4)239,458 (4)$20.75— (4)
Totals for A & C, wtd avg for B4,980,929 $15.8112,329,976 
(1)    The numbers of shares covered by stock options and the related option prices have been adjusted proportionately to reflect the estimated economic effects of dividends distributed in common stock effective October 1, 2008 through January 1, 2011. The cumulative compound adjustment factor related to those dividends is 20.038%.
(2)    Consists of the 2021 Plan, the ECP, the 2000 Directors’ Plans, the IBKC Plans, and the CBF Plans. The 2021 Plan was approved by shareholders in 2021 and remains active. The number of shares in Column C is entirely under the 2021 Plan; as provided in the 2021 Plan, the Col. C number includes the new/additional shares originally authorized under the 2021 Plan along with shares underlying ECP awards that have been forfeited or cancelled since the 2021 Plan was approved by shareholders, net of shares underlying 2021 Plan awards that are outstanding or have been paid. The ECP initially was approved by shareholders in 2003, most recently was re-approved in 2016, and has terminated. The 2000 Directors’ Plan was approved by shareholders in 2000, and has terminated. The IBKC Plans were approved by IBKC's shareholders in 2005, 2020, 2011, 2014, 2016, and 2019, and all have terminated. FHN and IBKC closed a merger-of-equals transaction in 2020, as a result of which FHN became the plan sponsor for the IBKC Plans and their awards. The CBF Plans were approved by shareholders of CBF or certain other predecessor companies, and all have terminated. FHN merged with CBF in 2017, as a result of which FHN became the plan sponsor for the CBF Plans and their awards."Terminated" means no new awards may be granted under the plan.
(3)    Consists entirely of outstanding options issued under terminated plans approved by shareholders, 30,733 of which directly or indirectly were issued in connection with non-employee director cash deferrals of approximately $0.3 million.
(4)    Consists of the 1997 Plan and the Advisory Board Plans, all of which have terminated. These outstanding options were issued directly or indirectly in connection with associate and advisory board cash deferrals of approximately $2.6 million.





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2021 FORM 10-K ANNUAL REPORT

ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
Only the 2021 Plan permits new awards to be granted; all other plans have terminated. At December 31, 2021, there were no shares issuable upon exercise of outstanding options under the 2021 Plan, and the total number of shares issuable upon exercise of outstanding options under the terminated plans was 4,980,929 shares.
Shares covered by outstanding options are shown in column A of Table 12.1. Outstanding equity awards other than options ("full-value awards"), consisting of unpaid stock units and restricted stock, are not included in any column in that Table. In total, 9,296,888 shares are covered by unpaid full-value awards, all granted under the 2021 Plan, the ECP, or the SIP.Of those, 8,714,844 are covered by unvested awards, and 582,044 are covered by awards that have vested but are subject to an unfulfilled mandatory deferral period. In addition, there are 227,830 fully vested deferral stock units outstanding that are the result of previously exercised options under terminated plans for which the receipt of the shares was deferred by the associate.
Column C of Table 12.1 presents the total number of shares available for new awards under the 2021 Plan at December 31, 2021, assuming eventual full exercise or vesting of all shares covered by awards outstanding on that date. The 2021 Plan permits the grant of options and full-value awards, as well as stock appreciation rights (none of which have been granted).
Of the options outstanding at December 31, 2021 (the total under column A), approximately 5% were issued directly or indirectly in connection with associate and director cash deferral elections. We received over many years a total of approximately $2.5 million in associate cash deferrals and $0.4 million in non-employee director and advisory board retainer and meeting fee deferrals related to outstanding deferral options. The opportunity to defer portions of compensation in exchange for options has not been offered to associates, directors, or advisory board members since 2004.
Description of Equity Compensation Plans Not Approved by Shareholders
The 1997 Plan
The 1997 Plan was adopted by the Board of Directors in 1996 and terminated in 2007. The 1997 Plan authorized the grant of nonqualified stock options.
Options were granted under the 1997 Plan prior to its termination pursuant to a management option program, covering a wide range of management-level associates. The last management options granted under the 1997 Plan, with seven-year terms, expired in 2014. However, prior to 2005 certain associates could elect to defer a portion of their annual compensation into stock options under the 1997 Plan. Many deferral options had 20-year terms, and they are the only options still outstanding under the 1997 Plan.
All deferral options granted under the 1997 Plan had an exercise price discounted from grant date fair market value: the aggregate exercise price plus the aggregate compensation foregone equaled the aggregate grant date fair market value. Options could be exercised using shares of FHN stock to pay the option price. When an option was exercised with shares, the option holder sometimes received a new (reload) option grant priced at then-current market (without a discount), covering the remainder of the deferral option's term.
As of December 31, 2021, options covering 232,254 shares of our common stock were outstanding under the 1997 Plan, no shares remained available for future option grants, and options covering 21,027,943 shares had been exercised during the life of the plan. The 1997 Plan was filed most recently as Exhibit 10.2(d) in our Form 10-Q for the quarter ended June 30, 2009.
The Advisory Board Plans
The Advisory Board Plans were adopted by the Board of Directors in 2001 and 1996, and terminated in 2005 and 2002, respectively.
Options granted under the Advisory Board Plans were granted only to regional and advisory board members, or to directors of certain bank affiliates, in any case who were not associates. The options were granted in lieu of the participants receiving retainers or attendance fees for bank board and advisory board meetings. The number of shares subject to grant equaled the amount of fees/retainers earned divided by one half of the fair market value of one share of common stock on the date of the option grant. The exercise price plus the amount of fees foregone equaled the fair market value of the stock on the grant date. The options were vested at the grant date. Those granted on or before January 2, 2004 had terms of twenty years, and are the only options still outstanding.
As of December 31, 2021, options covering 7,204 shares of our common stock were outstanding under the Advisory Board Plans, no shares remained available for future option grants, and options covering 90,097 shares had been exercised during the life of the Plans. The Advisory Board Plans were included as Exhibits 10.1(f) and 10.1(g) to our Form 10-Q for the quarter ended June 30, 2009. At the time this report is filed, all options outstanding under the 1996 Advisory Board Plan at December 31, 2021 have either expired or been exercised.



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2021 FORM 10-K ANNUAL REPORT

ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
Beneficial Ownership of Corporation Stock
The information required for this Item pursuant to Item 403(a) and (b) of Regulation S-K is presented in our 2022 Proxy Statement under the heading Stock Ownership
Information. That information is incorporated into this Item by reference.
Change in Control Arrangements
We are not aware of any arrangements which may result in a change in control of First Horizon Corporation.



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2021 FORM 10-K ANNUAL REPORT

ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS AND ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES
Item 13.    Certain Relationships and Related Transactions
The information called for by this Item is presented in the following sections of our 2022 Proxy Statement: Independence & Categorical Standards; Related Party Transaction Procedures; and Transactions with Related Persons. That information is incorporated into this Item by
reference. Our independent directors and nominees are identified in the first paragraph of the Independence discussion within the Independence & Categorical Standards section of our 2022 Proxy Statement.


Item 14.    Principal Accountant Fees and Services
The Audit Committee of the Board of Directors has a policy providing for pre-approval of all audit and non-audit services to be performed by our registered public accounting firm that performs the audit of our consolidated financial statements (our “Auditor”). Services either may be approved in advance by the Audit Committee specifically on a case-by-case basis (“specific pre-approval”) or may be approved in advance (“advance pre-approval”). Advance pre-approval requires the Committee to identify in advance the specific types of service that may be provided and the fee limits applicable to such types of service, which limits may be expressed as a limit by type of service or by category of services. All requests to provide services that have been pre-approved in advance must be submitted to the Chief Accounting Officer prior to the provision of such services for a determination that the service to be provided is of the type and within the fee limit that has been pre-approved. Unless the type of service to be provided by our Auditor has received advance pre-approval under the policy and the fee for such service is within the limit pre-approved, the service will require specific pre-approval by the Committee.
The terms of and fee for the annual audit engagement must receive the specific pre-approval of the Committee. “Audit,” “Audit-related,” “Tax,” and “All Other” services, as those terms are defined in the policy, have the advance pre-approval of the Committee, but only to the extent
those services have been specified by the Committee and only in amounts that do not exceed the fee limits specified by the Committee. Such advance pre-approval is to be for a term of 12 months following the date of pre-approval unless the Committee specifically provides for a different term. Unless the Committee specifically determines otherwise, the aggregate amount of the fees pre-approved for All Other services for the fiscal year must not exceed seventy-five percent (75%) of the aggregate amount of the fees pre-approved for the fiscal year for Audit services, Audit-related services, and those types of Tax services that represent tax compliance or tax return preparation. The policy delegates the authority to pre-approve services to be provided by our Auditor, other than the annual audit engagement and any changes thereto, to the chair of the Committee. The chair may not, however, make a determination that causes the 75% limit described above to be exceeded. Any service pre-approved by the chair will be reported to the Committee at its next regularly scheduled meeting.
Information regarding fees billed to FHN by our Auditor, KPMG LLP, for the two most recent fiscal years is incorporated herein by reference to the section of our 2022 Proxy Statement captioned Vote Item 2—Auditor Ratification. No services were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.


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2021 FORM 10-K ANNUAL REPORT

ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
PART IV


Item 15.    Exhibits and Financial Statement Schedules
Financial Statements & Related Reports
Our consolidated financial statements, the notes thereto, and the reports of management and independent public accountants, as listed below, are incorporated herein by
reference to the pages of 2021 Financial Statements (Item 8) indicated in Table 15.1.

Table 15.1
Item 8 PageStatement, Note, or Report Incorporated into Item 15
Report of Management on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
Notes to the Consolidated Financial Statements

Financial Statement Schedules
Not applicable.

Exhibits
In the exhibit table that follows: the “Filed Here” column denotes each exhibit which is filed or furnished (as applicable) with this report; the “Mngt Exh” column denotes each exhibit that represents a management contract or compensatory plan or arrangement required to be identified as such; the “Furnished” column denotes each exhibit that is “furnished” pursuant to 18 U.S.C. Section 1350 or otherwise, and is not “filed” as part of this report or as a separate disclosure document; and the phrase “2021 named executive officers” refers to those executive officers whose 2021 compensation is described in our 2022 Proxy Statement. All references to “First Horizon National Corporation” or to "First Tennessee National Corporation" refer to us, under previous corporate names.
In many agreements filed as exhibits, each party makes representations and warranties to other parties. Those representations and warranties are made only to and for the benefit of those other parties in the context of a business contract. Exceptions to such representations and warranties may be partially or fully waived by such parties, or not enforced by such parties, in their discretion. No such representation or warranty may be relied upon by any other person for any purpose.


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2021 FORM 10-K ANNUAL REPORT

ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Table 15.2
10-K EXHIBIT TABLE
Exh NoDescription of Exhibit to this 10-K ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh NoFiling Date
Corporate Exhibits
2.1X
3.18-K3.17/30/2021
3.28-K3.212/1/2020
4.18-K4.17/2/2020
4.28-K4.17/2/2020
4.38-K4.27/2/2020
4.48-K4.27/2/2020
4.58-K4.37/2/2020
4.68-K4.37/2/2020
4.78-K4.15/28/2020
4.88-K4.25/28/2020
4.98-K4.15/28/2020
4.108-K4.15/03/2021
4.118-K4.25/03/2021
4.128-K4.15/03/2021
4.1310-Q
2Q21
4.48/5/2021
4.14FHN agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument defining the rights of the holders of the senior and subordinated long-term debt of FHN and its consolidated subsidiaries
Equity-Based Award Plans
10.1 (a)XProxy 2021App. A3/15/2021
10.1 (b)XProxy 2016App. A3/14/2016
10.1 (c)X10-K 202010.1(b)2/25/2021
10.1 (d)X10-K 202010.1(c)2/25/2021


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ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh NoDescription of Exhibit to this 10-K ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh NoFiling Date
10.1 (e)X10-K 202010.1(d)2/25/2021
10.1 (f)X10-Q
2Q09
10.2(d)8/6/2009
10.1 (g)X10-Q
2Q09
10.1(e)8/6/2009
Performance-Based Equity Award Documents
10.2 (a)X10-Q
1Q16
10.65/6/2016
10.2 (b)X10-Q
1Q19
10.15/8/2019
10.2 (c)X10-Q
1Q20
10.15/8/2020
10.2 (d)X10-Q
1Q21
10.15/6/2021
Stock Option Award Documents
10.3 (a)X10-Q
2Q17
10.18/8/2017
10.3 (b)X10-K
2004
10.5(e)3/14/2005
10.3 (c)X10-K
2006
10.5(o)2/28/2007
10.3 (d)X10-Q 1Q1510.25/7/2015
10.3 (e)X10-Q 1Q1610.25/6/2016
10.3 (f)X10-Q 1Q1610.55/6/2016
10.3 (g)X10-Q 1Q1710.25/8/2017
10.3 (h)X10-Q 1Q1810.25/8/2018
10.3 (i)X10-Q 1Q1910.25/8/2019
10.3 (j)X10-Q 1Q2010.25/8/2020
10.3 (k)X10-K 202010.3(l)2/25/2021
Other Equity-Based Award Documents
10.4 (a)X10-Q 1Q1910.35/8/2019
10.4 (b)X10-Q 1Q2010.35/8/2020
10.4 (c)X10-Q 1Q2110.25/6/2021
10.4 (d)X10-Q 1Q2110.35/6/2021
10.4 (e)X10-K 201910.4(e)2/28/2020
10.4 (f)X10-K 202010.4(f)2/25/2021
10.4 (g)X10-Q 1Q2110.45/6/2021
Management Cash Incentive Plan Documents


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2021 FORM 10-K ANNUAL REPORT

ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh NoDescription of Exhibit to this 10-K ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh NoFiling Date
10.5 (a)X8-K10.110/27/2021
10.5 (b)XProxy 2016App B3/14/2016
Other Exhibits relating to Employment, Retirement, Severance, or Separation
10.6 (a)X8-K10.7(a2)2/26/2007
10.6 (b)X10-Q
3Q07
10.7(a4)11/7/2007
10.6 (c)X10-Q
3Q07
10.7(a5)11/7/2007
10.6 (d)X8-K10.211/24/2008
10.6 (e)X8-K10.11/29/2021
10.6 (f)X10-Q 3Q0710.7(e)11/7/2007
10.6 (g)X10-K
2009
10.7(d2)2/26/2010
10.6 (h)X10-Q 3Q1110.211/8/2011
10.6 (i)X8-K10.17/17/2012
10.6 (j)X8-K10.111/7/2019
10.6 (k)X8-K10.211/7/2019
10.6 (l)X10-K 202010.6(l)2/25/2021
10.6 (m)X10-K 202010.6(m)2/25/2021
10.6 (n)X8-K99.111/7/2019
10.6 (o)X10-K 202010.6(o)2/25/2021
10.6 (p)X8-K10.17/2/2020
10.6 (q)X8-K10.19/30/2021
10.6 (r)X8-K10.111/9/2021
Documents Related to Other Deferral Plans and Programs
10.7 (a)X10-Q 2Q1710.48/8/2017
10.7 (b)X10-Q 3Q0710.1(a3)11/7/2007
10.7 (c)X10-Q 3Q2110.111/5/2021
10.7 (d)X10-K
2018
10.7(d)2/28/2019


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2021 FORM 10-K ANNUAL REPORT

ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh NoDescription of Exhibit to this 10-K ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh NoFiling Date
10.7 (e)X10-Q 3Q0710.1(c)11/7/2007
10.7 (f)X8-K10(z)1/3/2005
Other Exhibits related to Management or Directors
10.8 (a)X10-Q 3Q0610.811/8/2006
10.8 (b)X10-K 202010.8(b)2/25/2021
10.8 (c)X10-Q 2Q1710.28/8/2017
10.8 (d)X10-Q 2Q1710.38/8/2017
10.8 (e)X8-K10.44/28/2008
10.8 (f)X8-K10.54/28/2008
10.8 (g)XX
10.8 (h)XX
Other Exhibits
1410-K
2008
142/26/2009
21X
23X
24X
31(a)X
31(b)X
32(a)XX
32(b)XX
XBRL Exhibits
101
The following financial information from First Horizon Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL:
(i) Consolidated Balance Sheets at December 31, 2021 and 2020
(ii) Consolidated Statements of Income for the Years Ended December 31, 2021, 2020, and 2019
(iii) Consolidated Statements of Comprehensive Income for the Years EndedDecember 31, 2021, 2020, and 2019.
(iv) Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021, 2020, and 2019.
(v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019.
(vi) Notes to the Consolidated Financial Statements
X


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2021 FORM 10-K ANNUAL REPORT

ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh NoDescription of Exhibit to this 10-K ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh NoFiling Date
101. INSXBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentX
101. SCHInline XBRL Taxonomy Extension SchemaX
101. CALInline XBRL Taxonomy Extension Calculation LinkbaseX
101. DEFInline XBRL Taxonomy Extension Definition LinkbaseX
101. LABInline XBRL Taxonomy Extension Label LinkbaseX
101. PREInline XBRL Taxonomy Extension Presentation LinkbaseX
104Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)X


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2021 FORM 10-K ANNUAL REPORT

ITEM 16. FORM 10-K SUMMARY
Item 16. Form 10-K Summary
Not applicable.


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2021 FORM 10-K ANNUAL REPORT

SIGNATURES
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    
 FIRST HORIZON CORPORATION                            
Date: March 1, 2022
 By: 
/s/ Hope Dmuchowski
 Name: 
Hope Dmuchowski
 Title: Senior Executive Vice President and Chief Financial Officer
  (Duly Authorized Officer and Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature*TitleDate*Signature*TitleDate*
D. Bryan Jordan
D. Bryan Jordan
President, Chief Executive Officer, and a Director (principal executive officer)
*
Hope Dmuchowski
Hope Dmuchowski
Senior Executive Vice President and Chief Financial Officer (principal financial officer)
*
Jeff L. Fleming
Jeff L. Fleming
Executive Vice President and Chief Accounting Officer (principal accounting officer)
*
Harry V. Barton, Jr.
Harry V. Barton, Jr.
Director*
Kenneth A. Burdick
Kenneth A. Burdick
Director*
Daryl G. Byrd
Daryl G. Byrd
Director*
John N. Casbon
John N. Casbon
Director*
John C. Compton
John C. Compton
Director*
Wendy P. Davidson
Wendy P. Davidson
Director*
William H. Fenstermaker
William H. Fenstermaker
Director*
J. Michael Kemp, Sr.
J. Michael Kemp, Sr.
Director*
Rick E. Maples
Rick E. Maples
Director*
Vicki R. Palmer
Vicki R. Palmer
Director*
Colin V. Reed
Colin V. Reed
Director*
E. Stewart Shea III
    E. Stewart Shea III
Director*
Cecelia D. Stewart
Cecelia D. Stewart
Director*
Rajesh Subramaniam
Rajesh Subramaniam
Director*
Rosa Sugrañes
Rosa Sugrañes
Director*
R. Eugene Taylor
R. Eugene Taylor
Director*

*By: /s/ Clyde A. Billings, Jr.
March 1, 2022
 Clyde A. Billings, Jr.
 As Attorney-in-Fact



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2021 FORM 10-K ANNUAL REPORT









AGREEMENT AND PLAN OF MERGER
by and among
FIRST HORIZON CORPORATION,
THE TORONTO-DOMINION BANK,
TD BANK US HOLDING COMPANY
and
FALCON HOLDINGS ACQUISITION CO.
image_0.jpg
Dated as of February 27, 2022




TABLE OF CONTENTS
Page
i



ii



Annex A – Requisite Regulatory Approvals
Annex B – Foundation Operating Guidelines

iii


INDEX OF DEFINED TERMS
Page

Acceptable Confidentiality Agreement    Section 6.13(a)
Acquisition Proposal    Section 6.13(b)
Additional Per Share Consideration    Section 1.5(a)
Advisory Client    Section 6.21
Advisory Contract    Section 6.21
affiliate    Section 9.6
Agreement    Preamble
Alternative Acquisition Agreement    Section 6.13(a)
Bank Merger    Recitals
Bank Merger Agreement    Section 1.11
Base Per Share Merger Consideration    Section 1.5(a)
BHC Act    Section 3.1(a)
business day    Section 9.6
CARES Act    Section 3.10
Certificates of Merger    Section 1.3
Chosen Courts    Section 9.9(b)
Closed Performance Company PSU    Section 1.8(e)(ii)
Closing    Section 1.2
Closing Date    Section 1.2
Code    Section 1.8(c)
Company    Preamble
Company 401(k) Plan    Section 6.6(c)
Company Advisory Subsidiary    Section 3.26(a)
Company Agent    Section 3.27(a)
Company Bank    Recitals
Company Benefit Plans    Section 3.11(a)
Company Board Recommendation    Section 6.3(a)
Company Broker-Dealer Subsidiary    Section 3.28(a)
Company Bylaws    Section 3.1(a)
Company Charter    Section 3.1(a)
Company Common Stock    Section 1.5(a)
Company Compensation Commitee    Section 1.8(e)(ii)
Company DCU    Section 1.8(d)
Company Disclosure Schedule    Article III
Company Dividend Equivalents    Section 1.8(i)
Company Equity Awards    Section 1.8(j)
Company ERISA Affiliate    Section 3.11(a)
Company Indemnified Parties    Section 6.7(a)
Company Insurance Subsidiary    Section 3.27(a)
Company LTI Unit    Section 1.8(f)
Company Meeting    Section 6.3(a)
Company Option    Section 1.8(a)
Company Owned Properties    Section 3.18
Company Phantom Award    Section 1.8(i)
Company Preferred Stock    Section 1.7(a)(v)
Company PSU    Section 1.8(e)(i)
Company Qualified Plans    Section 3.11(c)
Company Real Property    Section 3.18
Company Regulatory Agreement    Section 3.15
Company Reports    Section 3.12
Company Restricted Share    Section 1.8(b)(i)
Company RSU    Section 1.8(c)
Company SEC-Registered Subsidiaries    Section 3.28(a)
Company Securities    Section 3.2(a)
Company Severance Plans    Section 6.6(a)
Company Subsidiary    Section 3.1(b)
Confidentiality Agreement    Section 6.2(b)
Constituent Documents    Section 9.16
Continuation Period    Section 6.6(a)
Continuing Employee    Section 6.6(a)
Deferred Company PSU    Section 1.8(e)(iii)
Deferred Director RSUs    Section 1.8(g)
Delaware Secretary    Section 1.3
DGCL    Section 1.1
Director RSU    Section 1.8(g)
Effective Time    Section 1.3
Enforceability Exceptions    Section 3.3(a)
Environmental Laws    Section 9.16
ERISA    Section 3.11(a)
Exception Shares    Section 1.5(a)
Exchange Act    Section 9.16
Exchange Agent    Section 2.1
Exchange Fund    Section 2.1
FDIC    Section 9.16
Federal Reserve Board    Section 9.16
FINRA    Section 9.16
GAAP    Section 9.16
Governmental Entity    Section 9.16
Holdco    Preamble
Intellectual Property    Section 9.16
Intervening Event    Section 9.16
Investment Advisers Act    Section 3.26(b)
IRS    Section 3.11(b)
IT Assets    Section 3.13(d)
knowledge    Section 9.6
Liens    Section 9.16
Loans    Section 3.24(a)
made available    Section 9.6
Material Adverse Effect    Section 9.16
Material Contract    Section 3.14(a)
Materially Burdensome Regulatory
Condition    Section 6.1(c)
Merger    Recitals
Merger Consideration    Section 1.5(a)
Merger Sub    Preamble
Mergers    Recitals
MSRB    Section 3.28(a)
Multiemployer Plan    Section 3.11(a)
Multiple Employer Plan    Section 3.11(e)
New Foundation    Section 6.11
New Holdco Preferred Shares    Section 1.7(a)(v)
New Holdco Series B Preferred Shares    Section 1.7(a)(i)
New Holdco Series C Preferred Shares    Section 1.7(a)(ii)
New Holdco Series D Preferred Shares    Section 1.7(a)(iii)
New Holdco Series E Preferred Shares    Section 1.7(a)(iv)
New Holdco Series F Preferred Shares    Section 1.7(a)(v)
New Plans    Section 6.6(b)
OCC    Section 9.16
Old Certificate    Section 1.5(b)
Open Performance Company PSU    Section 1.8(e)(i)
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OSFI    Section 9.16
Pandemic    Section 9.16
Pandemic Measures    Section 9.16
Parent    Preamble
Parent 401(k) Plan    Section 6.6(c)
Parent Bank    Recitals
Parent Disclosure Schedule    Article IV
Parent Parties    Preamble
Parent Regulatory Agreement    Section 4.8
PBGC    Section 3.11(d)
Permitted Encumbrances    Section 9.16
person    Section 9.6
Personal Data    Section 3.13(b)
Premium Cap    Section 6.7(b)
Proxy Statement    Section 3.4
Recommendation Change    Section 6.3(b)
Regulatory Agencies    Section 9.16
Representatives    Section 6.13(a)
Requisite Company Vote    Section 3.3(a)
Requisite Regulatory Approvals    Section 6.1(b)
Sarbanes-Oxley Act    Section 3.6(c)
SEC    Section 9.16
Second Step Certificates of Merger    Section 1.10(a)
Second Step Effective Time    Section 1.10(a)
Second Step Merger    Recitals
Securities Act    Section 9.16
Security Breach    Section 3.13(d)
Series B Preferred Stock    Section 1.7(a)(i)
Series C Preferred Stock    Section 1.7(a)(ii)
Series D Preferred Stock    Section 1.7(a)(iii)
Series E Preferred Stock    Section 1.7(a)(iv)
Series F Preferred Stock    Section 1.7(a)(v)
Series G Convertible Preferred Stock    Recitals
Series G Convertible Preferred Stock
Purchase Agreement    Recitals
SRO    Section 9.16
Subsidiary    Section 9.16
Superior Proposal    Section 6.13(c)
Surviving Bank    Recitals
Surviving Corporation    Recitals
Takeover Statutes    Section 3.21
Tax    Section 9.16
Tax Return    Section 9.16
Taxes    Section 9.16
TBCA    Section 1.1
TDGUS    Section 1.5(a)
Tennessee Secretary    Section 1.3
Termination Date    Section 8.1(c)
Termination Fee    Section 8.2(b)


v


AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 27, 2022 (this “Agreement”), by and among The Toronto-Dominion Bank, a Canadian chartered bank (“Parent”), First Horizon Corporation, a Tennessee corporation (“Company”), and TD Bank US Holding Company, a Delaware corporation and an indirect, wholly owned subsidiary of Parent (“Holdco”) and Falcon Holdings Acquisition Co., a Delaware corporation and a direct subsidiary of Holdco (“Merger Sub” and together with Parent and Holdco, “Parent Parties”).
RECITALS
A.    The Boards of Directors of each of Parent, Holdco, Merger Sub and Company have determined that it is in the best interests of their respective companies and, in the case of Holdco, Merger Sub and Company, their shareholders, to consummate the strategic business combination transaction provided for in this Agreement, pursuant to which Merger Sub will, subject to the terms and conditions set forth herein, merge with and into Company (the “Merger”), so that Company is the surviving corporation in the Merger (hereinafter sometimes referred to in such capacity as the “Surviving Corporation”), and, following the Merger as set forth herein, the Surviving Corporation may, at Parent’s election and subject to the terms and conditions set forth herein, merge with and into Holdco (the “Second Step Merger”), so that Holdco is the surviving corporation in the Second Step Merger;
B.    In furtherance thereof, the respective Boards of Directors of Parent, Holdco, Merger Sub and Company have approved the Merger and adopted this Agreement and Company has resolved to submit this Agreement to its shareholders for approval and to recommend that its shareholders approve this Agreement;
C.    At a date and time following the Closing as determined by Parent, First Horizon Bank, a Tennessee state-chartered bank and wholly owned subsidiary of Company (“Company Bank”) will, subject to the terms and conditions set forth herein and in the Bank Merger Agreement, merge with and into TD Bank, National Association, a national banking association and wholly owned subsidiary of Holdco (“Parent Bank” and such merger, the “Bank Merger” and together with the Merger and the Second Step Merger, the “Mergers”), so that Parent Bank is the surviving bank in the Bank Merger (hereinafter sometimes referred to in such capacity as the “Surviving Bank”);
D.    As an inducement to and condition of Company’s willingness to enter into this agreement, concurrently with the entry of the parties into this Agreement, Parent and Company have entered into a Securities Purchase Agreement (the “Series G Convertible Preferred Stock Purchase Agreement ), pursuant to which Parent is acquiring $493,569,450 aggregate liquidation preference (such payment, the “Series G Convertible Preferred Stock Payment”) of Company’s Perpetual Convertible Preferred Stock, Series G (the “Series G Convertible Preferred Stock”); and
E.    In this Agreement, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.
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NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I

THE MERGER
Section 1.1    The Merger. Subject to the terms and conditions of this Agreement, in accordance with the Delaware General Corporation Law (the “DGCL”) and the Tennessee Business Corporation Act (the “TBCA”), at the Effective Time, Merger Sub shall merge with and into Company. Company shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of Tennessee. Upon consummation of the Merger, the separate corporate existence of Merger Sub shall terminate.
Section 1.2    Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) will take place by electronic exchange of documents at 10:00 a.m., New York City time, on the third (3rd) business day following the date on which all of the conditions set forth in Article VII hereof have been satisfied or waived (other than those conditions that by their nature can only be satisfied at the Closing, but subject to the satisfaction or waiver thereof) unless another date, time or place is agreed to in writing by Parent and Company; provided that if the foregoing would otherwise require the Closing to occur five (5) business days or less from the end of a month, then the Closing shall instead occur on the first (1st) business day of the immediately following month. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.
Section 1.3    Effective Time. On or (if agreed by Company and Parent) prior to the Closing Date, Parent and Company, respectively, shall cause to be filed a certificate of merger with the Secretary of State of the State of Delaware (the “Delaware Secretary”) and articles of merger with the Secretary of State of the State of Tennessee (the “Tennessee Secretary”) with respect to the Merger (collectively, the “Certificates of Merger”). The Merger shall become effective at such time specified in the Certificates of Merger in accordance with the relevant provisions of the DGCL and TBCA, or at such other time as shall be provided by applicable law (such time, the “Effective Time”).
Section 1.4    Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in the applicable provisions of the DGCL, the TBCA and this Agreement.
Section 1.5    Conversion of Company Common Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Holdco, Company or the holder of any securities of Parent, Holdco or Company:
(a)Each share of the common stock, par value $0.625 per share, of Company issued and outstanding immediately prior to the Effective Time (the “Company Common Stock”) (except for shares of Company Common Stock owned by Company, Parent, TD Group Holdings US LLC (“TDGUS”) or Holdco (in each case other than shares of Company Common Stock (i) held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a
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fiduciary or agency capacity or (ii) held, directly or indirectly, in respect of a debt previously contracted (collectively, the “Exception Shares”))) shall be converted into the right to receive from Holdco (or, at the election of Parent, Merger Sub) an amount in cash equal to the sum of $25.00, without interest (the “Base Per Share Merger Consideration”), and the Additional Per Share Consideration, if any (together, the “Merger Consideration”). For purposes of this Agreement, “Additional Per Share Consideration” shall be payable if (and only if) the Effective Time occurs after the date that is nine (9) months after the date hereof and shall be an amount in cash equal to $0.0017808 per share of Company Common Stock (other than the Exception Shares) for each day during the period commencing on, and including, the date that is nine (9) months after the date hereof, and ending on, and including, the day immediately prior to the Closing Date.
(b)All of the shares of Company Common Stock converted into the right to receive the Merger Consideration pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each, an “Old Certificate”, it being understood that any reference herein to “Old Certificate” shall be deemed to include reference to book-entry account statements relating to the ownership of shares of Company Common Stock) previously representing any such shares of Company Common Stock shall thereafter represent only the right to receive the Merger Consideration which the shares of Company Common Stock represented by such Old Certificate have been converted into the right to receive pursuant to this Section 1.5 and Section 2.2, without any interest thereon.
(c)Notwithstanding anything in this Agreement to the contrary, at the Effective Time, all shares of Company Common Stock that are owned by (i) Company (in each case other than the Exception Shares) shall be cancelled and shall cease to exist and neither the Merger Consideration nor any other consideration shall be delivered in exchange therefor and (ii) Parent, TDGUS or Holdco (in each case other than the Exception Shares) shall be converted into such number and type of shares of the Surviving Corporation as is agreed by Parent, TDGUS or Holdco, as applicable, and the Surviving Corporation, and, upon such conversion, each such share of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist.
Section 1.6    Surviving Corporation Common Stock. At the Effective Time, each share of the common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become an issued and outstanding share of common stock of the Surviving Corporation.
Section 1.7    Company Preferred Stock.
(a)At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Holdco, Merger Sub, Company or the holder of any securities of such companies:
(i)each share of Company’s 6.625% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”) shall remain issued and outstanding;
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(ii)each share of Company’s 6.60% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”) shall remain issued and outstanding;
(iii)each share of Company’s 6.100% Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, Series D (the “Series D Preferred Stock”) shall remain issued and outstanding immediately;
(iv)each share of Company’s Non-Cumulative Perpetual Preferred Stock, Series E (the “Series E Preferred Stock”) shall remain issued and outstanding; and
(v)each share of Company’s Non-Cumulative Perpetual Preferred Stock, Series F (the “Series F Preferred Stock” and together with the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series G Convertible Preferred Stock, the “Company Preferred Stock”) shall remain issued and outstanding.
(b)At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any of the following securities, each share of Series G Convertible Preferred Stock issued and outstanding immediately prior to the Effective Time shall automatically be converted into such number of common shares of the Surviving Corporation as have a value at the Effective Time equal to $100,000 and, upon such conversion, the Series G Convertible Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time.
Section 1.8    Treatment of Company Equity Awards.
(a)Company Options. At the Effective Time, each outstanding option to purchase shares of Company Common Stock (a “Company Option”) under the Stock Plans, whether vested or unvested, shall, automatically and without any required action on the part of the holder thereof, be cancelled and shall only entitle the holder of such Company Option to receive (without interest), as soon as reasonably practicable after the Effective Time (but in any event no later than three (3) Business Days after the Effective Time), an amount in cash equal to (i) the number of shares of Company Common Stock subject to such Company Option immediately prior to the Effective Time multiplied by (ii) the excess, if any, of (A) the Merger Consideration over (B) the exercise price per share of Company Common Stock of such Company Option, less applicable Taxes required to be withheld with respect to such payment. For the avoidance of doubt, any Company Option which has an exercise price per share of Company Common Stock that is greater than or equal to the Merger Consideration shall be cancelled at the Effective Time for no consideration or payment.
(b)Company Restricted Shares.
(i)At the Effective Time, each outstanding restricted stock award (a “Company Restricted Share”) under the Stock Plans that will become vested at the Effective Time in accordance with its terms shall, automatically and without any required action on the part of the holder thereof, be cancelled and shall only entitle the holder of such Company Restricted Share to receive (without interest), as soon as practicable after
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the Effective Time (but in any event no later than three (3) Business Days after the Effective Time), an amount in cash equal to (x) the number of shares of Company Common Stock subject to such Company Restricted Share immediately prior to the Effective Time multiplied by (y) the Merger Consideration, less applicable Taxes required to be withheld with respect to such payment.
(ii)At the Effective Time, each outstanding Company Restricted Share under the Stock Plans that will not become vested at the Effective Time in accordance with its terms shall be assumed by Parent and will be subject to the same terms and conditions applicable to such Company Restricted Share immediately prior to the Effective Time (including any accelerated vesting upon a qualifying termination of employment as set forth in the applicable Stock Plan or applicable award agreement), except that such Company Restricted Share shall be in respect of a number of Parent Common Shares that is equal to (x) number of shares of Company Common Stock subject to such Company Restricted Share immediately prior to the Effective Time multiplied by (y) the Exchange Ratio.
(c)Company RSUs.
(i)At the Effective Time, each outstanding restricted stock unit (a “Company RSU”) under the Stock Plans that will become vested at the Effective Time in accordance with its terms shall, automatically and without any required action on the part of the holder thereof, be cancelled and shall only entitle the holder of such Company RSU to receive (without interest), as soon as practicable after the Effective Time (but in any event no later than three (3) Business Days after the Effective Time), an amount in cash equal to (x) the number of shares of Company Common Stock subject to such Company RSU immediately prior to the Effective Time multiplied by (y) the Merger Consideration, less applicable Taxes required to be withheld with respect to such payment; provided, that, with respect to any Company RSU that constitutes nonqualified deferred compensation subject to Section 409A of the Code and that is not permitted to be paid at the Effective Time without triggering a Tax or penalty under Section 409A of the Code, such payment shall be made at the earliest time permitted under the applicable Stock Plan and award agreement that will not trigger a Tax or penalty under Section 409A of the Code.
(ii)At the Effective Time, each outstanding Company RSU under the Stock Plans that will not become vested at the Effective Time in accordance with its terms shall be assumed by Parent and will be subject to the same terms and conditions applicable to such Company RSU immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement) except that such Company RSU shall be in respect of a number of Parent Common Shares that is equal to (x) the number of shares of Company Common Stock underlying such Company RSU immediately prior to the Effective Time, multiplied by (y) the Exchange Ratio.
(d)Company DCUs. At the Effective Time, each outstanding deferred cash unit (a “Company DCU”) under the Company Benefit Plans shall be assumed by Parent and will be subject to the same terms and conditions applicable to such Company DCU immediately prior
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to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Company Benefit Plan or applicable award agreement).
(e)Company PSUs.
(i)At the Effective Time, each outstanding performance-based stock unit (each, a “Company PSU”) granted under the Stock Plans for which the applicable performance period is not complete (each, an “Open Performance Company PSU”) shall, automatically and without any required action on the part of the holder thereof, be assumed by Parent and will be subject to the same terms and conditions applicable to such Open Performance Company PSU immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement), except that such Open Performance Company PSU shall no longer be subject to performance-based vesting conditions, and such Open Performance Company PSU shall be in respect of a number of Parent Common Shares that is equal to (x) the number of shares of Company Common Stock underlying such Open Performance Company PSU immediately prior to the Effective Time, assuming achievement of applicable performance goals at target level, multiplied by (y) the Exchange Ratio.
(ii)At the Effective Time, each outstanding Company PSU granted under the Stock Plans for which the applicable performance period is complete but remains subject to service-based vesting conditions (each, a “Closed Performance Company PSU”) shall, automatically and without any required action on the part of the holder thereof, be assumed by Parent and will be subject to the same terms and conditions applicable to such Closed Performance Company PSU immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement), except that such Closed Performance Company PSU shall be in respect of a number of Parent Common Shares that is equal to (x) the number of shares of Company Common Stock underlying such Closed Performance Company PSU immediately prior to the Effective Time, based on achievement of applicable performance goals at the higher of target performance and actual performance as reasonably determined by the compensation committee of the Company Board (the “Company Compensation Committee ) in accordance with the terms of the applicable award agreement, multiplied by (y) the Exchange Ratio.
(iii)At the Effective Time, each outstanding Company PSU granted under the Stock Plans that is subject to a deferral arrangement (a “Deferred Company PSU”) shall, automatically and without any required action on the part of the holder thereof, be assumed by Parent and will be subject to the same terms and conditions applicable to such Deferred Company PSU immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement), except that such Deferred Company PSU shall be in respect of a number of Parent Common Shares that is equal to (x) the number of shares of Company Common Stock underlying such Deferred Company PSU immediately prior to the Effective Time, assuming achievement of applicable performance goals at target level, multiplied by (y) the Exchange Ratio.
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(f)Company LTI Units. At the Effective Time, each outstanding performance-based long term incentive unit (each, a “Company LTI Unit”) granted under the Stock Plans shall, automatically and without any required action on the part of the holder thereof, be assumed by Parent and will be subject to the same terms and conditions applicable to such Company LTI Unit immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement), except that such Company LTI Unit shall no longer be subject to performance-based vesting conditions and shall only entitle the holder of such Company LTI Unit to receive an amount in cash equal to (i) the number of Company LTI Units that would be earned based on target performance through the Effective Time multiplied by (ii) the designated per unit value of such award; provided, that any Company LTI Unit for which the applicable performance period is complete but remains subject to service-based vesting conditions shall instead convert based on achievement of applicable performance goals at the higher of target performance and actual performance as reasonably determined by the Company Compensation Committee in accordance with the terms of the applicable award agreement.
(g)Director RSUs. At the Effective Time, each Company RSU held by a current or former non-employee director of Company (a “Director RSU”), whether vested or unvested, shall, automatically and without any required action on the part of the holder thereof, be cancelled and shall only entitle the holder of such Director RSU to receive (without interest), as soon as reasonably practicable after the Effective Time (but in any event no later than three (3) Business Days after the Effective Time), an amount in cash equal to (i) the number of shares of Company Common Stock subject to such Director RSU immediately prior to the Effective Time multiplied by (ii) the Merger Consideration; provided, that, with respect to any Director RSUs that constitute nonqualified deferred compensation subject to Section 409A of the Code (the “Deferred Director RSUs”) and that are not permitted to be paid at the Effective Time without triggering a Tax or penalty under Section 409A of the Code, such payment shall be made at the earliest time permitted under the applicable Stock Plan and award agreement that will not trigger a Tax or penalty under Section 409A of the Code.
(h)Company Phantom Awards.
(i)At the Effective Time, each outstanding cash-based award measured by reference to a share of Company Common Stock (a “Company Phantom Award”) under the Stock Plans that will become vested at the Effective Time in accordance with its terms shall, automatically and without any required action on the part of the holder thereof, be cancelled and shall only entitle the holder of such Company Phantom Award to receive (without interest), as soon as practicable after the Effective Time (but in any event no later than three (3) Business Days after the Effective Time), an amount in cash equal to (x) the number of shares of Company Common Stock subject to such Company Phantom Award immediately prior to the Effective Time multiplied by (y) the Merger Consideration, less applicable Taxes required to be withheld with respect to such payment; provided, that, with respect to any Company Phantom Award that constitutes nonqualified deferred compensation subject to Section 409A of the Code and that is not permitted to be paid at the Effective Time without triggering a Tax or penalty under Section 409A of the Code, such payment shall be made at the earliest time permitted under the applicable Stock Plan and award agreement that will not trigger a Tax or penalty under Section 409A of the Code.
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(ii)At the Effective Time, each outstanding Company Phantom Award under the Stock Plans that will not become vested at the Effective Time in accordance with its terms shall be assumed by Parent and will be subject to the same terms and conditions applicable to such Company Phantom Award immediately prior to the Effective Time (including any accelerated vesting upon qualifying terminations of employment as set forth in the applicable Stock Plan or applicable award agreement) except that such Company Phantom Award shall be in respect of a number of Parent Common Shares that is equal to (x) the number of shares of Company Common Stock underlying such Company Phantom Award immediately prior to the Effective Time, multiplied by (y) the Exchange Ratio.
(i)Any dividend equivalent rights associated with any Company Restricted Share, Company RSU, Company PSU, Director RSU or Company Phantom Award (collectively, the “Company Dividend Equivalents”) (i) credited in the form of additional Company Restricted Shares, Company RSUs, Company PSUs, Director RSUs or Company Phantom Awards, as applicable, shall be treated in the same manner as the award to which such dividend equivalent rights relate in accordance with this Section 1.8 and (ii) credited in the form of cash shall be paid at the same time or times the award to which such dividend equivalent rights relate is paid or settled in accordance with this Section 1.8, in each case, consistent with the terms of the applicable Stock Plan immediately prior to the Effective Time.
(j)At or prior to the Effective Time, the Company and the Company Board (and the Company Compensation Committee), as applicable, shall adopt any resolutions and take any actions that are necessary to effectuate the treatment of Company Options, Company Restricted Shares, Company RSUs, Company DCUs, Company PSUs, Company LTI Units, Director RSUs, Company Phantom Awards and Company Dividend Equivalents (collectively, the “Company Equity Awards”) pursuant to Section 1.8(a) through Section 1.8(i).
(k)Notwithstanding anything in Section 1.8(a) through Section 1.8(i) to the contrary, but subject to Section 7.1(a), to the extent the terms of any Company Equity Award (i) granted on or after the date of this Agreement and not in violation of this Agreement or (ii) mutually agreed by the Parties and a holder of any Company Equity Award expressly provide for treatment in connection with the occurrence of the Effective Time that is different from the treatment prescribed by this Section 1.8, then in each case of clause (i) and (ii), the terms of such Company Equity Award, as applicable or so agreed by the Parties and such holder, shall control (and the applicable provisions of this Section 1.8 shall not apply).
(l)At Parent’s election, the Surviving Corporation will enter into an agreement with Parent and/or one or more of Parent’s affiliates pursuant to which the Surviving Corporation will reimburse directly or indirectly Parent for expenses associated with the obligations assumed by Parent pursuant to Section 1.8.
Section 1.9    Certificate of Incorporation and Bylaws of the Surviving Corporation. The certificate of incorporation and bylaws of the Surviving Corporation shall by virtue of the Merger be amended to be identical to the certificate of incorporation and bylaws of Merger Sub as in effect immediately prior to the Effective Time (in each case except that the name of the Surviving Corporation shall be “First Horizon Corporation”), until duly amended in accordance with the respective terms thereof and applicable law.
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Section 1.10    Second Step Merger.
(a)On a date following the Closing Date to be determined by Parent in its sole discretion, Holdco and the Surviving Corporation, respectively, may (if Parent so elects) cause to be filed a certificate of merger with the Delaware Secretary and articles of merger with the Tennessee Secretary with respect to the Second Step Merger (collectively, the “Second Step Certificates of Merger”). The Second Step Merger shall become effective at such time specified in the Second Step Certificates of Merger in accordance with the relevant provisions of the DGCL and TBCA, or at such other time as shall be provided by applicable law (such time, the “Second Step Effective Time”).
(b)Subject to the terms and conditions of this Agreement, in accordance with the DGCL and the TBCA, at the Second Step Effective Time, the Surviving Corporation shall merge with and into Holdco. Holdco shall be the surviving corporation in the Second Step Merger, and shall continue its corporate existence under the laws of the State of Delaware. Upon consummation of the Second Step Merger, the separate corporate existence of the Surviving Corporation shall terminate.
(c)At and after the Second Step Effective Time, the Second Step Merger shall have the effects set forth in the applicable provisions of the DGCL, the TBCA and this Agreement.
(d)At the Second Step Effective Time, by virtue of the Second Step Merger and without any action on the part of Parent, Holdco, Surviving Corporation or the holder of any securities of Parent, Holdco or Surviving Corporation, each share of common stock of the Surviving Corporation that is issued and outstanding immediately prior to the Second Step Effective Time, shall automatically be cancelled and retired for no consideration and shall cease to exist.
(e)The shares of Holdco stock issued and outstanding immediately prior to the Second Step Effective Time shall not be affected by the Second Step Merger, and, accordingly, each share of Holdco stock issued and outstanding immediately prior to the Second Step Effective Time shall, at and after the Second Step Effective Time, remain issued and outstanding.
(f)At the Second Step Effective Time, by virtue of the Second Step Merger and without any action on the part of Parent, Holdco, Merger Sub, Company or the holder of any securities of such companies:
(i)each share of Company’s Series B Preferred Stock issued and outstanding immediately prior to the Second Step Effective Time shall automatically be converted into a share of a newly created series of preferred shares of Holdco having powers, preferences and special rights that are not materially less favorable than the Series B Preferred Stock (all shares of each such newly created series, collectively, the “New Holdco Series B Preferred Shares”) and, upon such conversion, the Series B Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time;
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(ii)each share of Company’s Series C Preferred Stock issued and outstanding immediately prior to the Second Step Effective Time shall automatically be converted into a share of a newly created series of preferred shares of Holdco having powers, preferences and special rights that are not materially less favorable than the Series C Preferred Stock (all shares of each such newly created series, collectively, the “New Holdco Series C Preferred Shares”) and, upon such conversion, the Series C Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time;
(iii)each share of Company’s Series D Preferred Stock issued and outstanding prior to the Second Step Effective Time shall automatically be converted into a share of a newly created series of preferred shares of Holdco having powers, preferences and special rights that are identical to the powers, preferences and special rights of the Series D Preferred Stock (all shares of each such newly created series, collectively, the “New Holdco Series D Preferred Shares”) and, upon such conversion, the Series D Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time;
(iv)each share of Company’s Series E Preferred Stock issued and outstanding immediately prior to the Second Step Effective Time shall automatically be converted into a share of a newly created series of preferred shares of Holdco having terms that are not materially less favorable than those of the Series E Preferred Stock (all shares of each such newly created series, collectively, the “New Holdco Series E Preferred Shares”) and, upon such conversion, the Series E Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time; and
(v)each share of Company’s Series F Preferred Stock issued and outstanding immediately prior to the Second Step Effective Time shall automatically be converted into a share of a newly created series of preferred shares of Holdco having terms that are not materially less favorable than those of the Series F Preferred Stock (all shares of each such newly created series, collectively, the “New Holdco Series F Preferred Shares”, and together with the New Holdco Series B Preferred Shares, the New Holdco Series C Preferred Shares, the New Holdco Series D Preferred Shares and the New Holdco Series E Preferred Shares, the “New Holdco Preferred Shares”) and, upon such conversion, the Series F Preferred Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time.
(g)The certificate of incorporation and bylaws of the Surviving Corporation shall be the certificate of incorporation and bylaws of Holdco as in effect immediately prior to the Second Step Effective Time, until duly amended in accordance with the respective terms thereof and applicable law.
Section 1.11Bank Merger. At such time as Parent determines after the Effective Time, Company Bank shall merge with and into Parent Bank. Parent Bank shall be the Surviving Bank in the Bank Merger and, following the Bank Merger, the separate corporate existence of Company Bank shall terminate. The parties to this Agreement agree that the Bank Merger shall become effective at such date and time following the Effective Time as Parent shall specify as provided for in the Bank Merger Agreement in accordance with applicable law. The
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Bank Merger shall be implemented pursuant to an agreement and plan of merger (the “Bank Merger Agreement”) entered into by Parent Bank and Company Bank on the date of this Agreement. Company, as the sole voting shareholder of Company Bank, and Holdco, as sole shareholder of Parent Bank, shall each approve the Bank Merger Agreement. Company shall cause Company Bank, and Holdco shall cause Parent Bank, to execute such certificates or articles of merger and such other documents and certificates as are necessary to effectuate the Bank Merger. Notwithstanding anything to the contrary contained herein, no covenant or other provision hereof shall be construed as enabling Parent to exercise control over Company or any of its affiliates prior to the Effective Time.
ARTICLE II

DELIVERY OF MERGER CONSIDERATION
Section 2.1    Exchange Agent. At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited by Holdco or Merger Sub, with a bank or trust company designated by Parent and reasonably acceptable to Company (the “Exchange Agent”), for the benefit of the holders of Old Certificates, for exchange in accordance with this Article II, cash in an amount sufficient to allow the Exchange Agent to make all payments required pursuant to this Article II (the “Exchange Fund”). The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Parent, provided that no such investment or losses thereon shall affect the amount of Merger Consideration payable to the holders of Old Certificates. Any interest and other income resulting from such investments shall be paid to Parent or Holdco, or as otherwise directed by Parent.
Section 2.2    Exchange Procedures.
(a)As promptly as practicable after the Effective Time, but in no event later than five (5) business days thereafter, Parent shall cause the Exchange Agent to mail to each person who was, immediately prior to the Effective Time, a holder of record of one or more Old Certificates representing shares of Company Common Stock, a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Old Certificates shall pass, only upon proper delivery of the Old Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Old Certificates in exchange for the consideration for which such person may be entitled pursuant to Section 1.5 and this Article II. Upon proper surrender of an Old Certificate or Old Certificates for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Old Certificate or Old Certificates shall be entitled to receive in exchange therefor, a check representing the amount of cash to which such holder is entitled pursuant to Section 1.5 and this Article II, and the Old Certificate or Old Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued with respect to any Merger Consideration to be delivered upon surrender of Old Certificates. Until surrendered as contemplated by this Section 2.2, each Old Certificate shall be deemed at any time after the Effective Time to represent only the right to receive, upon surrender, the Merger Consideration.
(b)After the Effective Time, there shall be no transfers on the stock transfer books of Company of the shares of Company Common Stock that were issued and outstanding immediately prior to the Effective Time.
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(c)Any portion of the Exchange Fund that remains unclaimed by the holders of Company Common Stock for one (1) year after the Effective Time shall be paid to the Surviving Corporation. Any former holders of Company Common Stock who have not theretofore exchanged their Old Certificates pursuant to this Article II shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration, without any interest thereon. Notwithstanding the foregoing, none of Parent, Company, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former holder of shares of Company Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.
(d)Parent shall be entitled to deduct and withhold, or cause its Subsidiaries, including Holdco or Merger Sub, or the Exchange Agent to deduct and withhold, from the Merger Consideration or any other amounts otherwise payable pursuant to this Agreement to any holder of Company Common Stock or Company Equity Awards (or any amounts payable pursuant to Section 8.2) such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. If Parent determines that it or any of its Subsidiaries is required to deduct or withhold any amount from any payment to be made pursuant to this Agreement (in each case other than in respect of deductions or withholding arising in connection with payments treated as compensation for applicable tax purposes), Parent shall provide notice to Company of Parent’s intent to deduct or withhold such amount and the basis for such deduction or withholding at least fifteen (15) days before any such deduction or withholding is made to the extent reasonably practicable, or shall otherwise provide such notice as promptly as reasonably practicable, and Parent shall reasonably cooperate with Company in order to eliminate or to reduce any such deduction or withholding, including providing a reasonable opportunity for Company to provide forms or other evidence that would mitigate, reduce or eliminate such deduction or withholding. To the extent that amounts are so deducted and withheld, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.
(e)In the event any Old Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Old Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such person of a bond in such amount as Parent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Old Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Old Certificate the Merger Consideration.
ARTICLE III

REPRESENTATIONS AND WARRANTIES OF COMPANY
Except (i) as disclosed in the disclosure schedule delivered by Company to Parent concurrently herewith (the “Company Disclosure Schedule” ) (it being understood that (a) no item is required to be set forth as an exception to a representation or warranty if its absence would not result in the related representation or warranty being deemed materially untrue or incorrect, (b) the mere inclusion of an item in the Company Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by Company that such item represents a material exception or fact, event or circumstance or that such item would have a
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Material Adverse Effect and (c) any disclosures made with respect to a section of this Article III shall be deemed to qualify (1) any other section of this Article III specifically referenced or cross-referenced and (2) other sections of this Article III to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections) or (ii) as disclosed in any Company Reports filed with or furnished to the SEC by Company since January 1, 2020 and prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarly non-specific or cautionary, predictive or forward-looking in nature), Company hereby represents and warrants to Parent as follows:
Section 3.1    Corporate Organization.
(a)Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee, is a bank holding company duly registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) and has elected to be treated as a financial holding company under the BHC Act. Company has the corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted in all material respects. Company is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing, qualification or standing necessary, except where the failure to be so licensed or qualified or to be in good standing would not, either individually or in the aggregate, have a Material Adverse Effect on Company. True and complete copies of the restated charter of Company (the “Company Charter”) and the amended and restated bylaws of Company (the “Company Bylaws”), in each case, as in effect as of the date of this Agreement, have previously been made available by Company to Parent.
(b)Except as would not, either individually or in the aggregate, have a Material Adverse Effect on Company, each Subsidiary of Company (a “Company Subsidiary”) (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly licensed or qualified to do business and, where such concept is recognized under applicable law, in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership, leasing or operation of property or the conduct of its business requires it to be so licensed or qualified or in good standing and (iii) has all requisite corporate power and authority to own, lease or operate its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability of Company or any Subsidiary of Company to pay dividends or distributions except, in the case of Company or a Subsidiary that is a regulated entity, for restrictions on dividends or distributions generally applicable to all similarly regulated entities. Company Bank is a state member bank duly organized, validly existing and chartered under the laws of the State of Tennessee, and is the only depository institution subsidiary (within the meaning of the BHC Act) of Company. The deposit accounts of Company Bank are insured by the FDIC through the Deposit Insurance Fund (as defined in Section 3(y) of the Federal Deposit Insurance Act of 1950) to the fullest extent permitted by law, all premiums and assessments required to be paid in connection therewith have been paid when due, and no proceedings for the termination of such insurance are pending or threatened. Section 3.1(b) of the Company Disclosure Schedule sets forth a true, correct and complete list of each Company Subsidiary and any other person in which Company or any Company Subsidiary beneficially
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owns as principal one percent (1%) or more of such person’s voting securities, in each case of the date hereof, including the jurisdiction of incorporation or organization of each Company Subsidiary. There is no person whose results of operations, cash flows, changes in shareholders’ equity or financial position are consolidated in the financial statements of Company other than the Company Subsidiaries.
Section 3.2    Capitalization.
(a)The authorized capital stock of Company consists of 700,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, no par value. As of February 24, 2022, with the exception of exercise, vesting, settlement and forfeiture, in each case, since January 31, 2022, as to a de minimis number of shares of Company Common Stock underlying Company Equity Awards, there were (i) 533,961,891 shares of Company Common Stock issued and outstanding, including 986,656 Company Restricted Shares; (ii) 4,845,010 shares of Company Common Stock reserved for issuance upon the exercise of outstanding Company Options; (iii) 7,464,276 shares of Company Common Stock reserved for issuance upon the settlement of outstanding Company RSUs (inclusive of Director RSUs other than Deferred Director RSUs); (iv) 2,076,978 shares of Company Common Stock (assuming performance goals are satisfied at the target level) or 3,733,889 shares of Company Common Stock (assuming performance goals are satisfied at the maximum level) reserved for issuance upon the settlement of outstanding unvested Open Performance Company PSU Awards; (v) 549,519 shares of Company Common Stock reserved for issuance upon the settlement of vested Deferred Company PSUs for which applicable performance goals have been met and Deferred Director RSUs, in each case, following the lapse of an applicable holding period; (vi) 8,000 shares of Series B Preferred Stock; (vii) 5,750 shares of Series C Preferred Stock; (viii) 10,000 shares of Series D Preferred Stock; (ix) 1,500 shares of Series E Preferred Stock; and (x) 1,500 shares of Series F Preferred Stock. As of the execution and delivery of this Agreement, there are no shares of Series G Convertible Preferred Stock issued and outstanding. As of the date of this Agreement, except as set forth in the immediately preceding two sentences, for changes since February 24, 2022 resulting from the exercise, vesting or settlement of any Company Equity Awards described in the immediately preceding two sentences and shares of Company Common Stock reserved for issuance pursuant to future grants under the Stock Plans, there are no shares of capital stock or other voting securities or equity interests of Company issued, reserved for issuance or outstanding. As of February 24, 2022, 3,081,350 Company DCUs were outstanding, 467,698 Company Phantom Awards were outstanding and 3,095,039 Company LTI Units were outstanding (assuming performance goals are satisfied at the target level) or 4,642,559 Company LTI Units were outstanding (assuming performance goals are satisfied at the maximum level), in each case, with the exception of vesting, settlement and forfeiture, in each case, since January 31, 2022, as to a de minimis number of shares of Company Common Stock underlying such Company Equity Awards. All of the issued and outstanding shares of Company Common Stock and Company Preferred Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Company is current on all dividends payable on the outstanding shares of Company Preferred Stock, and has complied in all material respects with terms and conditions thereof. There are no bonds, debentures, notes or other indebtedness that have the right to vote on any matters on which shareholders of Company may vote. Other than Company Equity Awards and Company Preferred Stock, issued prior to the date of this Agreement as described in this Section 3.2(a), as of the date of this Agreement there are no outstanding subscriptions, options, warrants,
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stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character relating to, or securities or rights convertible or exchangeable into or exercisable for, shares of capital stock or other voting or equity securities of or ownership interest in Company, or contracts, commitments, understandings or arrangements by which Company may become bound to issue additional shares of its capital stock or other equity or voting securities of or ownership interests in Company or that otherwise obligate Company to issue, transfer, sell, purchase, redeem or otherwise acquire, any of the foregoing (collectively, “Company Securities”). Other than the Company Equity Awards, no equity-based awards (including any cash awards where the amount of payment is determined in whole or in part based on the price of any capital stock of Company or any of its Subsidiaries) are outstanding. There are no voting trusts, shareholder agreements, proxies or other agreements in effect to which Company or any of its Subsidiaries is a party with respect to the voting or transfer of Company Common Stock, capital stock or other voting or equity securities or ownership interests of Company or granting any shareholder or other person any registration rights.
(b)Except as would not, either individually or in the aggregate, have a Material Adverse Effect on Company, Company owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the Company Subsidiaries, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (except, with respect to Subsidiaries that are depository institutions, as provided under any provision of applicable state law comparable to 12 U.S.C. § 55) and free of preemptive rights, with no personal liability attaching to the ownership thereof.
Section 3.3    Authority; No Violation.
(a)Company has full corporate power and authority to execute and deliver this Agreement and, subject to the shareholder and other actions described below, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of Company. The Board of Directors of Company has determined that the Merger, on the terms and conditions set forth in this Agreement, is advisable and in the best interests of Company and its shareholders, has adopted and approved this Agreement and the transactions contemplated hereby (including the Merger), and has directed that this Agreement be submitted to Company’s shareholders, for approval at a meeting of such shareholders and has adopted a resolution to the foregoing effect. Except for the approval of this Agreement by the affirmative vote of a majority of all the votes entitled to be cast on such matter by the holders of Company Common Stock (the “Requisite Company Vote”), and subject to the adoption and approval of the Bank Merger Agreement by Company as Company Bank’s sole voting shareholder, no other corporate proceedings on the part of Company are necessary to approve this Agreement or to consummate the transactions contemplated hereby, including the Merger, the Second Step Merger and the Bank Merger, (other than the submission to the shareholders of Company of an advisory (non-binding) vote on the compensation that may be paid or become payable to Company’s named executive officers that is based on or otherwise related to the transactions contemplated by this Agreement). This Agreement has been duly and validly executed and delivered by Company and (assuming due authorization, execution and delivery by Parent) constitutes a valid and binding obligation of Company, enforceable against Company in accordance with its terms (except in all
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cases as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws of general applicability affecting the rights of creditors generally and the availability of equitable remedies (the “Enforceability Exceptions”)).
(b)Neither the execution and delivery of this Agreement by Company, nor the consummation by Company of the transactions contemplated hereby (including the Merger, the Second Step Merger and the Bank Merger), nor compliance by Company with any of the terms or provisions hereof, will (i) violate any provision of the Company Charter or the Company Bylaws or (ii) assuming that the consents and approvals referred to in Section 3.4 are duly obtained, (x) violate any law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Company or any of its Subsidiaries or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Company or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clauses (x) and (y) above) for such violations, conflicts, breaches, defaults, terminations, cancellations, accelerations or creations that, either individually or in the aggregate, would not have a Material Adverse Effect on Company.
Section 3.4    Consents and Approvals. Except for (a) the filing of the applications, filings or notices to or with the Governmental Entities, Regulatory Agencies and SROs listed in Annex A and approval of or non-objection to such applications, filings and notices, (b) the filing with the SEC of a proxy statement in definitive form relating to the meeting of Company’s shareholders to be held in connection with this Agreement and the transactions contemplated hereby (including any amendments or supplements thereto, the “Proxy Statement”), and (c) the filing of the Certificates of Merger with the Delaware Secretary and the Tennessee Secretary pursuant to the DGCL and the TBCA, no consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (i) the execution and delivery by Company of this Agreement or (ii) the consummation by Company of the Merger, the Second Step Merger and the other transactions contemplated hereby (including the Bank Merger). As of the date hereof, Company has no knowledge of any reason related to the Company or its Subsidiaries why the necessary regulatory approvals and consents will not be received to permit consummation of the Mergers on a timely basis (including any reason why the relevant statutory factors related to such approvals and consents will not be satisfied).
Section 3.5    Reports. Company and each of its Subsidiaries have timely filed (or furnished) all reports, forms, correspondence, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file (or furnish, as applicable) since January 1, 2020 with any Regulatory Agencies including any report, form, correspondence, registration or statement required to be filed (or furnished, as applicable) pursuant to the laws, rules or regulations of the United States, any state, any foreign entity or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file (or furnish, as applicable) such report, form, correspondence, registration or statement or to pay such fees and assessments, either individually
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or in the aggregate, would not have a Material Adverse Effect on Company. Subject to Section 9.14, (a) except for normal examinations conducted by a Regulatory Agency in the ordinary course of business of Company and its Subsidiaries, no Regulatory Agency has initiated or has pending any proceeding or, to the knowledge of Company, investigation into the business or operations of Company or any of its Subsidiaries since January 1, 2020, except where such proceedings or investigations would not have, either individually or in the aggregate, a Material Adverse Effect on Company, and (b) there (i) is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations or inspections of Company or any of its Subsidiaries and (ii) have been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Agency with respect to the business, operations, policies or procedures of Company or any of its Subsidiaries since January 1, 2020 in each case, which would have, either individually or in the aggregate, a Material Adverse Effect on Company.
Section 3.6    Financial Statements.
(a)The financial statements of Company and its Subsidiaries included (or incorporated by reference) in the Company Reports (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Company and its Subsidiaries in all material respects, (ii) fairly present in all material respects the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of cash flows, consolidated statements of equity and consolidated statements of condition of Company and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. Since January 1, 2020, no independent public accounting firm of Company has resigned (or informed Company that it intends to resign) or been dismissed as independent public accountants of Company as a result of or in connection with any disagreements with Company on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
(b)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, neither Company nor any of its Subsidiaries has any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Company included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2021 (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2021, or in connection with this Agreement and the transactions contemplated hereby.
(c)The records, systems, controls, data and information of Company and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership of Company or its Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership that would not have a
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Material Adverse Effect on Company. Company (x) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Company, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Company by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and (y) has disclosed, based on its most recent evaluation prior to the date hereof, to Company’s outside auditors and the audit committee of Company’s Board of Directors (i) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Company’s ability to record, process, summarize and report financial information and (ii) to the knowledge of Company, any fraud, whether or not material, that involves management or other employees who have a significant role in Company’s internal controls over financial reporting. To the knowledge of Company, any such disclosures were made in writing by management to Company’s auditors and audit committee. To the knowledge of Company, there is no reason to believe that Company’s outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.
(d)Since January 1, 2020, (i) neither Company nor any of its Subsidiaries, nor, to the knowledge of Company, any director, officer, auditor, accountant or representative of Company or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Company or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices and (ii) no employee of or attorney representing Company or any of its Subsidiaries, whether or not employed by Company or any of its Subsidiaries, has reported evidence of a material violation of securities laws or banking laws, breach of fiduciary duty or similar violation by Company or any of its Subsidiaries or any of their respective officers, directors, employees or agents to the Board of Directors of Company or any committee thereof or the Board of Directors or similar governing body of any Company Subsidiary or any committee thereof, or to the knowledge of Company, to any director or officer of Company or any Company Subsidiary.
Section 3.7    Broker’s Fees. With the exception of the engagement of Morgan Stanley & Co. LLC, neither Company nor any Company Subsidiary nor any of their respective officers or directors has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement. Prior to the date hereof, Company has disclosed to Parent the aggregate fees provided for in connection with the engagement by Company of
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Morgan Stanley & Co. LLC related to the Merger and the other transactions contemplated hereunder.
Section 3.8    Absence of Certain Changes or Events.
(a)Since December 31, 2020, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would have, either individually or in the aggregate, a Material Adverse Effect on Company.
(b)Since December 31, 2020 through the date of this Agreement, Company and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.
Section 3.9    Legal and Regulatory Proceedings.
(a)Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Company, neither Company nor any of its Subsidiaries is a party to any, and there are no outstanding or pending or, to the knowledge of Company, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Company or any of its Subsidiaries or any of their current or former directors or executive officers or challenging the validity or propriety of the transactions contemplated by this Agreement.
(b)Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Company, there is no injunction, order, judgment, decree, or regulatory restriction imposed upon Company, any of its Subsidiaries or the assets of Company or any of its Subsidiaries (or that, upon consummation of the Mergers, would apply to the Surviving Corporation or any of its affiliates).
Section 3.10    Taxes and Tax Returns. Each of Company and its Subsidiaries has duly and timely filed (including all applicable extensions) all income and other material Tax Returns in all jurisdictions in which Tax Returns are required to be filed by it, and all such Tax Returns are true, correct and complete in all material respects. Neither Company nor any of its Subsidiaries is the beneficiary of any extension of time within which to file any material Tax Return (other than extensions to file Tax Returns automatically obtained in the ordinary course). All income and other material Taxes of Company and its Subsidiaries (whether or not shown on any Tax Returns) that are due have been fully and timely paid. Each of Company and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party. Neither Company nor any of its Subsidiaries has granted any extension or waiver of the limitation period applicable to any material Tax that remains in effect. In the last six (6) years, no written claim has been made by a Governmental Entity in a jurisdiction in which Company or any of its Subsidiaries (as applicable) does not file Tax Returns that Company or such Subsidiary (as applicable) is or may be subject to taxation by, or required to file Tax Returns in, that jurisdiction. Neither Company nor any of its Subsidiaries has received written notice of assessment or proposed assessment in connection with any material amount of Taxes, and there are no threatened in writing or pending disputes, claims, audits, examinations or other proceedings regarding any material Tax of Company and its Subsidiaries
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or the assets of Company and its Subsidiaries. Neither Company nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Company and its Subsidiaries or pursuant to agreements which both (1) were not primarily related to Taxes and (2) were entered into in the ordinary course of business consistent with past practice). Since January 1, 2016, neither Company nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Company or any of its Subsidiaries) or (B) has any liability for the Taxes of any person (other than Company or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise (other than pursuant to agreements which both (1) were not primarily related to Taxes and (2) were entered into in the ordinary course of business consistent with past practice). Neither Company nor any of its Subsidiaries has been, within the past two (2) years a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for tax-free treatment under Section 355 of the Code. Neither Company nor any of its Subsidiaries has participated in a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(1). No private letter rulings, closing agreements, technical advice memoranda or similar agreements or rulings have been entered into with or issued by any Governmental Entity within the three (3) year period immediately preceding the date of this Agreement with respect to Company or any of its Subsidiaries that would bind Company or any of its Subsidiaries in any taxable period (or portion thereof) after the Closing Date. Neither Company nor any of its Subsidiaries owns any “bank owned life insurance” policies or “company owned life insurance” policies for which any death benefit payments would be subject to U.S. federal income taxation. Neither Company nor any of its Subsidiaries has elected to defer any “applicable employment taxes” (as defined in Section 2302(d)(1) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”)) pursuant to Section 2302 of the CARES Act. Nothing in this Section 3.10 or otherwise in this Agreement shall be construed as a representation or warranty with respect to the amount, value or availability in any Tax period (or portion thereof) beginning after the Closing Date of any net operating loss, capital loss, Tax credit, Tax basis or other Tax asset or attribute of Company or any of its Subsidiaries. It is agreed and understood that no representation or warranty is made by Company, any of its Subsidiaries or its Affiliates in respect of Tax matters in any section of this Agreement, other than this Section 3.10 and relevant parts of Section 3.11.
Section 3.11    Employee Benefits.
(a)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, each Company Benefit Plan has been established, operated and administered in accordance with its terms and the requirements of all applicable laws, including ERISA and the Code. Section 3.11(a) of the Company Disclosure Schedule sets forth a complete and accurate list of each material Company Benefit Plan. For purposes of this Agreement, the term “Company Benefit Plans” means all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), whether or not subject to ERISA, and all equity or equity-based, bonus or incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, termination, change in control, retention, employment, welfare, insurance, medical, fringe or other benefit plans, programs, agreements, contracts, policies, arrangements or remuneration of any kind with
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respect to which Company or any Subsidiary or any trade or business, whether or not incorporated, which together with Company would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Company ERISA Affiliate”), is a party or has any current or future obligation or that are maintained, contributed to or sponsored by Company or any of its Subsidiaries or any Company ERISA Affiliate for the benefit of any current or former employee, officer, director or independent contractor of Company or any of its Subsidiaries or any Company ERISA Affiliate, excluding, in each case, any “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA (a “Multiemployer Plan”).
(b)Company has made available to Parent true, correct and complete copies of each material Company Benefit Plan (or, in the case of any unwritten material Company Benefit Plan, a description thereof) and the following related documents, to the extent applicable: (i) all summary plan descriptions, amendments, modifications or material supplements, (ii) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the “IRS”), (iii) the most recently received IRS determination letter, (iv) the most recently prepared actuarial report and (v) any related trust agreement or other funding instrument.
(c)The IRS has issued a favorable determination letter or opinion with respect to each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code (the “Company Qualified Plans”) and the related trust, which letter or opinion has not been revoked (nor has revocation been threatened), and, to the knowledge of Company, there are no existing circumstances and no events have occurred that would reasonably be expected to adversely affect the qualified status of any Company Qualified Plan or the related trust.
(d)Except as would not result in any material liability to Company and its Subsidiaries, taken as a whole, with respect to each Company Benefit Plan that is subject to Section 302 or Title IV of ERISA or Section 412, 430 or 4971 of the Code: (i) the minimum funding standard under Section 302 of ERISA and Sections 412 and 430 of the Code has been satisfied and no waiver of any minimum funding standard or any extension of any amortization period has been requested or granted, (ii) no such plan is in “at-risk” status for purposes of Section 430 of the Code, (iii) the present value of accrued benefits under such Company Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Company Benefit Plan’s actuary with respect to such Company Benefit Plan, did not, as of its latest valuation date, exceed the then current fair market value of the assets of such Company Benefit Plan allocable to such accrued benefits, (iv) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, (v) all premiums to the Pension Benefit Guaranty Corporation (the “PBGC”) have been timely paid in full, (vi) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by Company or any of its Subsidiaries and (vii) the PBGC has not instituted proceedings to terminate any such Company Benefit Plan.
(e)None of Company and its Subsidiaries nor any Company ERISA Affiliate has, at any time during the last six (6) years, contributed to or been obligated to contribute to a Multiemployer Plan or a plan that has two (2) or more contributing sponsors at least two (2) of whom are not under common control, within the meaning of Section 4063 of ERISA (a “Multiple Employer Plan”), and none of Company and its Subsidiaries nor any Company ERISA Affiliate has incurred any liability that has not been satisfied in full to a Multiemployer Plan or
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Multiple Employer Plan as a result of a complete or partial withdrawal (as those terms are defined in Part I of Subtitle E of Title IV of ERISA) from a Multiemployer Plan or Multiple Employer Plan.
(f)Except as would not result in any material liability to Company and its Subsidiaries, taken as a whole, no Company Benefit Plan provides for any post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees or beneficiaries or dependents thereof, except as required by Section 4980B of the Code.
(g)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, all contributions required to be made to any Company Benefit Plan by applicable law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Company Benefit Plan, for any prior period, have been timely made or paid in full or, to the extent not required to be previously made or paid, have been fully reflected on the books and records of Company.
(h)There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, and, to Company’s knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Company Benefit Plans, any fiduciaries thereof with respect to their duties to the Company Benefit Plans or the assets of any of the trusts under any of the Company Benefit Plans that would reasonably be expected to result in any liability of Company or any of its Subsidiaries in an amount that would be material to Company and its Subsidiaries, taken as a whole.
(i)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, none of Company and its Subsidiaries nor any Company ERISA Affiliate nor, to Company’s knowledge, any fiduciary, has engaged in any “prohibited transaction” (as defined in Section 4975 of the Code or Section 406 of ERISA) which would reasonably be expected to subject any of the Company Benefit Plans or their related trusts, Company, any of its Subsidiaries or any Company ERISA Affiliate to any material Tax or penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
(j)Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) result in, cause the acceleration of vesting, exercisability, funding or delivery of, or increase in the amount or value of, any payment, right or other benefit to any current or former employee, officer, director or other service provider of Company or any of its Subsidiaries, or result in any limitation on the right of Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Company Benefit Plan or related trust on or after the Effective Time. Without limiting the generality of the foregoing, no amount paid or payable (whether in cash, in property, or in the form of benefits) by Company or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the Code.
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(k)No Company Benefit Plan provides for the gross-up or reimbursement of Taxes under Section 409A or 4999 of the Code, or otherwise.
(l)No Company Benefit Plan is maintained for the benefit of any current or former employee, officer, director or other service provider of Company or any of its Subsidiaries who, while employed or engaged by Company or any of its Subsidiaries, primarily resides or provides services (or resided or provided services) outside of the United States.
(m)There are no pending or, to the knowledge of Company, threatened unfair labor practice claims or charges against Company or any of its Subsidiaries. Since January 1, 2020, there have been no strikes, lockouts, concerted slowdowns or work stoppages or other labor disputes involving Company or any of its Subsidiaries. Neither Company or any of its Subsidiaries is party to, bound by, or negotiating any collective bargaining or similar agreement with any union, works council or other labor organization. Since January 1, 2020, there have been no pending or, to the knowledge of Company, threatened organizing efforts by any union or other group seeking to represent any current or former employees of Company or any of its Subsidiaries.
(n)Since January 1, 2020, neither Company nor any of its Subsidiaries has conducted any “plant closing” or “mass layoff” (each as defined by the Worker Adjustment and Retraining Notification Act of 1988) or any similar group layoff of employees requiring notice to a Governmental Entity pursuant to applicable state, local or foreign law, or implemented any material early retirement, exit incentive, or other group separation program, nor as to each of the foregoing has Company nor any of its Subsidiaries planned or announced any such action or program for the future.
(o)Since January 1, 2020, (i) to the knowledge of Company, no executive officer or director of Company or any of its Subsidiaries has been the subject of a pending allegation of sexual harassment or sexual assault and (ii) neither Company nor any of its Subsidiaries has entered into any settlement agreements related to allegations of sexual harassment or other sexual misconduct by any executive officer or director of Company.
Section 3.12    SEC Reports. An accurate and complete copy of each final registration statement, prospectus, report, schedule and definitive proxy statement filed with or furnished to the SEC, as the case may be, since January 1, 2020 by Company pursuant to the Securities Act or the Exchange Act (the “Company Reports”) is publicly available, and no such Company Report or communication, as of the date thereof (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of their respective dates, all Company Reports filed or furnished under the Securities Act and the Exchange Act complied in all material respects with the published rules and regulations of the SEC with respect thereto. As of the date of this Agreement, no executive officer of Company has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act. As of the date of
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this Agreement, there are no outstanding comments from, or unresolved issues raised by, the SEC with respect to any of the Company Reports.
Section 3.13    Compliance with Applicable Law.
(a)Company and each of its Subsidiaries hold, and have at all times since January 1, 2020, held, all licenses, registrations, franchises, certificates, variances, permits, charters and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and pursuant to each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold nor the cost of obtaining and holding such license, registration, franchise, certificate, variance, permit, charter or authorization (nor the failure to pay any fees or assessments) would, either individually or in the aggregate, have a Material Adverse Effect on Company, and, to the knowledge of Company, no suspension or cancellation of any such necessary license, registration, franchise, certificate, variance, permit, charter or authorization is threatened.
(b)Except as would not, either individually or in the aggregate, have a Material Adverse Effect on Company, Company and each of its Subsidiaries have complied with and are not in default or violation under any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to Company or any of its Subsidiaries, including (i) all applicable laws and regulations (and publicly posted policies) relating to the privacy and security of data or information that constitutes personal data, personally identifiable information, or personal information under applicable law or regulation (such information, “Personal Data”) and (ii) the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, Title V of the Gramm-Leach-Bliley Act, any and all sanctions or regulations enforced by the Office of Foreign Assets Control of the United States Department of Treasury and any other law, policy or guideline relating to bank secrecy, discriminatory lending, financing or leasing practices, consumer protection, money laundering prevention, foreign assets control, U.S. sanctions laws and regulations, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act, the Flood Disaster Protection Act of 1973 (as amended) and the National Flood Insurance Act of 1968 and the implementing regulations thereunder, the CARES Act, Pandemic Measures, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Company and its Subsidiaries have established and maintain a system of internal controls designed to ensure compliance by Company and its Subsidiaries with applicable financial recordkeeping and reporting requirements of applicable money laundering prevention laws in jurisdictions where Company and its Subsidiaries conduct business.
(c)Company Bank has, and at all times during the past three (3) years has had, a Community Reinvestment Act rating no lower than “Satisfactory”.
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(d)Company maintains a written information privacy and security program and takes commercially reasonable measures to protect the privacy, confidentiality, integrity, availability and security of all hardware, software, databases, systems, networks, websites, applications and other information technology assets and equipment (collectively, “IT Assets”) and Personal Data used in its business against any (i) loss or misuse of Personal Data, (ii) unauthorized access or unlawful operations performed upon such IT Assets or Personal Data or (iii) other act or omission that compromises the security or confidentiality of the IT Assets or Personal Data (clauses (i) through (iii), a “Security Breach”). To the knowledge of Company, since January 1, 2020, Company has not experienced any Security Breach that would, individually or in the aggregate, have a Material Adverse Effect on Company. To the knowledge of Company, there are no data security or other technological vulnerabilities, viruses, malware or other corruptants with respect to the IT Assets owned by and used in Company’s business that, individually or in the aggregate, would have a Material Adverse Effect on Company.
(e)Without limitation, none of Company, or any of its Subsidiaries, or to the knowledge of Company, any director, officer, employee, agent or other person acting on behalf of Company or any of its Subsidiaries has, directly or indirectly, (i) used any funds of Company or any of its Subsidiaries for unlawful contributions, unlawful gifts, unlawful entertainment or other expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of Company or any of its Subsidiaries, (iii) violated any provision that would result in the violation of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law, (iv) established or maintained any unlawful fund of monies or other assets of Company or any of its Subsidiaries, (v) made any fraudulent entry on the books or records of Company or any of its Subsidiaries or (vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business, to obtain special concessions for Company or any of its Subsidiaries, to pay for favorable treatment for business secured or to pay for special concessions already obtained for Company or any of its Subsidiaries, or is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the United States Treasury Department, except, in each case, as would not, either individually or in the aggregate, have a Material Adverse Effect on Company.
(f)As of the date hereof, each of Company and Company Bank is “well-capitalized” (as such term is defined in the relevant regulation of the institution’s primary federal regulator) and, as of the date hereof, to the knowledge of Company, neither Company nor any of its Subsidiaries is aware of any fact, event or circumstance that would result in Company and Company Bank not being “well-capitalized” within one year from the date of this Agreement.
(g)Except as would not, either individually or in the aggregate, have a Material Adverse Effect on Company, (i) Company and each of its Subsidiaries have properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable state, federal and foreign law; and (ii) none of Company, any of its Subsidiaries, or any of its or its Subsidiaries’ directors, officers or employees, has committed any breach of trust or fiduciary duty with respect to any such fiduciary account, and the accountings for each such fiduciary
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account are true, correct and complete and accurately reflect the assets and results of such fiduciary account.
Section 3.14    Certain Contracts.
(a)Except as set forth in Section 3.14(a) of the Company Disclosure Schedule or as filed with any Company Reports, as of the date hereof, neither Company nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral), but excluding any Company Benefit Plan:
(i)which is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);
(ii)which contains a non-compete or client or customer non-solicitation requirement, in each case, that materially restricts the conduct of any line of business by Company or any of its Subsidiaries or upon consummation of the Mergers will materially restrict the ability of the Surviving Corporation or any of its affiliates to engage in any line of business or in any geographic region;
(iii)which is a collective bargaining agreement or similar agreement with any union, works council or other labor organization;
(iv)any of the benefits of or obligations under which will arise or be increased or accelerated by the occurrence of the execution and delivery of this Agreement, receipt of the Requisite Company Vote or the announcement or consummation of any of the transactions contemplated by this Agreement, or under which a right of cancellation or termination will arise as a result thereof, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, where such increase or acceleration of benefits or obligations, right of cancellation or termination, or change in calculation of value of benefits would, either individually or in the aggregate, have a Material Adverse Effect on Company;
(v)(A) that relates to the incurrence of indebtedness by Company or any of its Subsidiaries, including any sale and leaseback transactions, capitalized leases and other similar financing arrangements (other than deposit liabilities, trade payables, federal funds purchased, advances and loans from the Federal Home Loan Bank and securities sold under agreements to repurchase, in each case, incurred in the ordinary course of business consistent with past practice), (B) that provides for the guarantee, support, assumption, endorsement or material indemnification by Company or any of its Subsidiaries of, or any similar commitment by Company or any of its Subsidiaries with respect to, the obligations, liabilities or indebtedness of any other person, in the case of each of clauses (A) and (B), in the principal amount of $50,000,000.00 or more, but, in each case, excluding any indebtedness disclosed in any Company Report(s) filed since January 1, 2021 or entered into in the ordinary course of business or (C) that relates to the incurrence of indebtedness (or guarantees thereof) and have terms that require Company to maintain a listing on a stock exchange or reporting obligations under the Exchange Act (or provide substantially similar disclosure to holders of such debt);
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(vi)that grants any material right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of Company or its Subsidiaries, taken as a whole;
(vii)which creates future payment obligations in excess of $5,000,000.00 per annum (other than any such contracts which are terminable by Company or any of its Subsidiaries on ninety (90) days or less notice without any required payment (other than the payment of any outstanding obligation at the time of termination) or other conditions, other than the condition of notice), other than with respect to indebtedness disclosed in any Company Report(s) filed since January 1, 2021 or leases or other agreements entered into in the ordinary course of business;
(viii)that is a settlement, consent or similar agreement and contains any material continuing obligations of Company or any of its Subsidiaries;
(ix)that relates to the acquisition or disposition of any person, business or asset and under which Company or its Subsidiaries have or may have a material obligation or liability;
(x)for the purchase of materials, supplies, goods, services, equipment or other assets by Company or its Subsidiaries that provides for annual payments of $5,000,000.00 or more;
(xi)that relates to any material joint venture, partnership, limited liability company agreement or other similar agreement or arrangement; or
(xii)that relates to material Intellectual Property or material IT Assets, other than (A) non-exclusive in-licenses to commercially available software or (B) non-exclusive out-licenses to customers in the ordinary course of business.
Each contract, arrangement, commitment or understanding of the type described in this Section 3.14(a), whether or not set forth in the Company Disclosure Schedule, is referred to herein as a “Material Contract.” Company has made available to Parent true, correct and complete copies of each Material Contract in effect as of the date hereof.
(b)(i) Each Material Contract is valid and binding on Company or one of its Subsidiaries, as applicable, and in full force and effect, except as, either individually or in the aggregate, would not have a Material Adverse Effect on Company, (ii) Company and each of its Subsidiaries have in all material respects complied with and performed all obligations required to be complied with or performed by any of them to date under each Material Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not have a Material Adverse Effect on Company, (iii) to the knowledge of Company, each third-party counterparty to each Material Contract has in all material respects complied with and performed all obligations required to be complied with and performed by it to date under such Material Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not have a Material Adverse Effect on Company, (iv) neither Company nor any of its Subsidiaries has knowledge of, or has received notice of, any violation of any Material Contract by any of the other parties thereto which would have, either individually or in
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the aggregate, a Material Adverse Effect on Company and (v) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material breach or default on the part of Company or any of its Subsidiaries or, to the knowledge of Company, any other party thereto, of or under any such Material Contract, except where such breach or default, either individually or in the aggregate, would not have a Material Adverse Effect on Company.
Section 3.15    Actions by Regulatory Agencies. Subject to Section 9.14, neither Company nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since January 1, 2020, a recipient of any supervisory letter from, or since January 1, 2020, has adopted any policies, procedures or board resolutions at the request or suggestion of, any Regulatory Agency or other Governmental Entity that currently restricts in any material respect or would reasonably be expected to restrict in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management, its business or its ability to consummate the transactions contemplated hereby in a timely manner (each, whether or not set forth in the Company Disclosure Schedule, a “Company Regulatory Agreement”), nor has Company or any of its Subsidiaries been advised in writing, or to Company’s knowledge, orally, since January 1, 2020, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such Company Regulatory Agreement.
Section 3.16    Environmental Matters. Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, Company and its Subsidiaries are in compliance, and have complied since January 1, 2020, with any Environmental Laws. There are no legal, administrative, arbitral or other proceedings, claims or actions or, to the knowledge of Company, any private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could reasonably be expected to result in the imposition, on Company or any of its Subsidiaries of any liability or obligation arising under any Environmental Law pending or threatened against Company, which liability or obligation would have, either individually or in the aggregate, a Material Adverse Effect on Company. To the knowledge of Company, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would have, either individually or in the aggregate, a Material Adverse Effect on Company. Company is not subject to any agreement, order, judgment, decree, letter agreement or memorandum of agreement by or with any court, Governmental Entity, Regulatory Agency or other third party imposing any liability or obligation with respect to the foregoing that would have, either individually or in the aggregate, a Material Adverse Effect on Company.
Section 3.17    Investment Securities and Commodities. Each of Company and its Subsidiaries has good title in all material respects to all securities and commodities owned by it (except those sold under repurchase agreements) which are material to Company’s business on a consolidated basis, free and clear of any Lien, except to the extent such securities or commodities are pledged in the ordinary course of business to secure obligations of Company or its
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Subsidiaries. Such securities and commodities are valued on the books of Company in accordance with GAAP in all material respects.
Section 3.18    Real Property. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Company, Company or a Company Subsidiary (a) has good and marketable title to all the real property reflected in the latest audited balance sheet included in the Company Reports as being owned by Company or a Company Subsidiary or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business) (the “Company Owned Properties”), free and clear of all Liens, except Permitted Encumbrances and (b) is the lessee of all leasehold estates reflected in the latest audited financial statements included in such Company Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof) (such leasehold estates, collectively with the Company Owned Properties, the “Company Real Property”), free and clear of all Liens, except for Permitted Encumbrances, and is in possession of the properties purported to be leased thereunder, and each such lease is valid without default thereunder by the lessee or, to the knowledge of Company, the lessor. There are no pending or, to the knowledge of Company, threatened condemnation proceedings against the Company Real Property.
Section 3.19    Intellectual Property. Company and each of its Subsidiaries owns (in each case, free and clear of any material Liens (other than Permitted Encumbrances)), all Intellectual Property owned or purported to be owned by Company and its Subsidiaries which is material to the conduct of its business as currently conducted. Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company: (i) the operation of Company’s and its Subsidiaries’ businesses does not infringe, misappropriate or otherwise violate the rights other than patents, and to the knowledge of the Company, any patents, of any third person; (ii) since January 1, 2020, Company has not received any written communication alleging from any Person that Company or any of its Subsidiaries has infringed, misappropriated or otherwise violated the Intellectual Property rights of such person; (iii) to the knowledge of Company, no person is challenging, infringing on or otherwise violating any right of Company or any of its Subsidiaries with respect to any Intellectual Property owned by Company or its Subsidiaries; (iv) since January 1, 2020, neither Company nor any of its Subsidiaries has received any written notice of any pending claim contesting or challenging the ownership or validity of any Intellectual Property owned by Company or any Company Subsidiary; (v) the Intellectual Property registrations and applications that are, in each case, owned by Company and its Subsidiaries, are subsisting and unexpired, and, to the knowledge of Company, valid and enforceable; and (vi) Company and its Subsidiaries have taken commercially reasonable actions to avoid the abandonment, cancellation or unenforceability of all Intellectual Property owned by Company and its Subsidiaries.
Section 3.20    Related Party Transactions. As of the date hereof, except as set forth in any Company Reports, there are no transactions or series of related transactions, agreements, arrangements or understandings, nor are there any currently proposed transactions or series of related transactions, between Company or any of its Subsidiaries, on the one hand, and any current or former director or “executive officer” (as defined in Rule 3b-7 under the Exchange Act) of Company or any of its Subsidiaries or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) five percent (5%) or more of the outstanding Company Common Stock (or any of such person’s immediate family members or affiliates)
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(other than Subsidiaries of Company) on the other hand, of the type required to be reported in any Company Report pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act.
Section 3.21    State Takeover Laws. The Board of Directors of Company has approved this Agreement and the transactions contemplated hereby and has taken all such other necessary actions as required to render inapplicable to such agreements and transactions the provisions of any potentially applicable takeover laws of any state, including any “moratorium,” “control share,” “fair price,” “takeover” or “interested shareholder” law or any similar provisions of the organizational documents of Parent, Holdco or Merger Sub (collectively, with any similar provisions of the Company Charter or Company Bylaws, “Takeover Statutes”). In accordance with Section 48-23-102 of the TBCA, no appraisal or dissenters’ rights will be available to the holders of Company Common Stock or Company Preferred Stock in connection with the Merger.
Section 3.22    Opinion. Prior to the execution of this Agreement, Company has received an opinion (which if initially rendered orally, has been or will be confirmed by written opinion of the same date) from Morgan Stanley & Co. LLC, to the effect that as of the date thereof and subject to the various assumptions made, procedures followed, matters considered, and the qualifications and limitations on the scope of review undertaken by Morgan Stanley & Co. LLC as set forth in its written opinion, the Base Per Share Merger Consideration is fair from a financial point of view to Company. Such opinion has not been amended or rescinded as of the date of this Agreement.
Section 3.23    Company Information. The information relating to Company and its Subsidiaries included in (a) the Proxy Statement on the date it (or any amendment or supplement thereto) is first mailed to holders of Company Common Stock or at the time of the Company Meeting, and (b) the documents and financial statements of Company incorporated by reference in the Proxy Statement or any amendment or supplement thereto or (c) any other document filed with any other Regulatory Agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement relating to Company and its Subsidiaries and other portions within the reasonable control of Company will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation or warranty is made by Company with respect to statements made or incorporated by reference therein based on information provided or supplied by or on behalf of Parent or its Subsidiaries for inclusion in the Proxy Statement.
Section 3.24    Loan Portfolio.
(a)As of the date hereof, except as set forth in Section 3.24(a) of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to any written or oral loan, loan agreement, note or borrowing arrangement (including leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “Loans”) in which Company or any Company Subsidiary is a creditor that, as of December 31, 2021, had an outstanding balance of $5,000,000.00 or more and under the terms of which the obligor was, as of December 31, 2021, over ninety (90) days or more delinquent in payment of principal or interest. Set forth in Section 3.24(a) of the Company Disclosure Schedule is a true, correct and
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complete list of (A) all the Loans of Company and its Subsidiaries that, as of December 31, 2021, had an outstanding balance of $5,000,000.00 or more and were classified by Company as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder, together with the aggregate principal amount of and accrued and unpaid interest on such Loans, by category of Loan (e.g., commercial, consumer, etc.) and (B) each asset of Company or any of its Subsidiaries that, as of November 30, 2021, is classified as “Other Real Estate Owned” and the book value thereof.
(b)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, each Loan of Company or any of its Subsidiaries (i) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (ii) to the extent carried on the books and records of Company and its Subsidiaries as secured Loans, has been secured by valid charges, mortgages, pledges, security interests, restrictions, claims, liens or encumbrances, as applicable, which have been perfected and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to the Enforceability Exceptions.
(c)Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, each outstanding Loan of Company or any of its Subsidiaries (including Loans held for resale to investors) was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant Loan files are being maintained, in all material respects in accordance with the relevant notes or other credit or security documents, the written underwriting standards of Company and its Subsidiaries (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local laws, regulations and rules.
(d)Section 3.24(d) of the Company Disclosure Schedule contains a complete and accurate list of all extensions of credit as of November 30, 2021, by Company Bank and its Subsidiaries to any directors, executive officers and principal shareholders (as such terms are defined in Regulation O of the Federal Reserve Board (12 C.F.R. Part 215)) of Company Bank, and each such extension of credit is and was made in compliance in all material respects with all applicable laws.
(e)Except as disclosed in Section 3.24(e) of the Company Disclosure Schedule, there are no extensions of credit by Company Bank or its Subsidiaries to any employee, officer, director (as such terms are defined in Regulation O of the Federal Reserve Board (12 C.F.R. Part 215)) or other affiliate of Company Bank on which the borrower is paying a rate other than that reflected in the note or the relevant credit agreement or on which the borrower is paying a rate that was below market at the time the extensions of credit were made.
Section 3.25    Insurance. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Company, (a) Company and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of Company reasonably has determined to be prudent and consistent with industry practice, and Company and its Subsidiaries are in compliance in all material respects with their insurance policies and are not in default under any of the terms thereof, (b) each such
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policy is outstanding and in full force and effect and, except for policies insuring against potential liabilities of current or former officers, directors and employees of Company and its Subsidiaries, Company or the relevant Subsidiary thereof is the sole beneficiary of such policies, (c) all premiums and other payments due under any such policy have been paid, and all claims thereunder have been filed in due and timely fashion, (d) there is no claim for coverage by Company or any of its Subsidiaries pending under any insurance policy as to which coverage has been questioned, denied or disputed by the underwriters of such insurance policy and (e) neither Company nor any of its Subsidiaries has received notice of any threatened termination of, material premium increase with respect to, or material alteration of coverage under, any insurance policies.
Section 3.26    Investment Advisor Subsidiaries.
(a)Certain Subsidiaries of Company are registered, licensed or qualified, or are required to be registered, licensed or qualified, in connection with the provision of investment management, investment advisory or sub-advisory services (Company and each such Subsidiary, a “Company Advisory Subsidiary”). Each Company Advisory Subsidiary is registered as an investment adviser under the Investment Advisers Act and has operated since January 1, 2020 and is currently operating in compliance with all laws applicable to it or its business and has all registrations, permits, licenses, exemptions, orders and approvals required for the operation of its business or ownership of its properties and assets substantially as presently conducted, except, in each case, as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Company.
(b)The accounts of each advisory client of Company or its Subsidiaries, for purposes of the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), that are subject to ERISA and/or Section 4975 of the Code have been managed by the applicable Company Advisory Subsidiary in compliance with the applicable requirements of ERISA and Section 4975 of the Code, except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Company.
(c)None of the Company Advisory Subsidiaries nor any person “associated” (as defined in the Investment Advisers Act) with any Company Advisory Subsidiaries is ineligible pursuant to Section 203 of the Investment Advisers Act to serve as an investment advisor or as a person associated with a registered investment advisor, except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Company.
Section 3.27    Insurance Subsidiaries.
(a)Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on Company, (i) since January 1, 2020, at the time each agent, representative, producer, reinsurance intermediary, wholesaler, third-party administrator, distributor, broker, employee or other person authorized to sell, produce, manage or administer products on behalf of any Company Subsidiary (“Company Agent”) wrote, sold, produced, managed, administered or procured business for a Company Subsidiary, such Company Agent was, at the time Company Agent wrote or sold business, duly licensed for the type of activity and business written, sold, produced, managed, administered or produced to the
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extent required by applicable law, (ii) no Company Agent has been since January 1, 2020, or is currently, in violation (or with or without notice or lapse of time or both, would be in violation) of any law, rule or regulation applicable to such Company Agent’s writing, sale, management, administration or production of insurance business for any Company Insurance Subsidiary (as defined below) and (iii) each Company Agent was appointed by Company or a Company Insurance Subsidiary in compliance with applicable insurance laws, rules and regulations and all processes and procedures undertaken with respect to such Company Agent were undertaken in compliance with applicable insurance laws, rules and regulations. “Company Insurance Subsidiary” means each Subsidiary of Company through which insurance operations is conducted.
(b)Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on Company, (i) since January 1, 2020, Company and the Company Insurance Subsidiaries have made all required notices, submissions, reports or other filings under applicable insurance holding company statutes, (ii) all contracts, agreements, arrangements and transactions in effect between any Company Insurance Subsidiary and any affiliate are in compliance in all material respects with the requirements of all applicable insurance holding company statutes and (iii) each Company Insurance Subsidiary has operated and otherwise been in compliance with all applicable insurance laws, rules and regulations.
Section 3.28    Broker-Dealer and Other SEC-Regulated Subsidiaries.
(a)Company has certain Subsidiaries that are registered, licensed or qualified, or are required to be registered, licensed or qualified, as a broker-dealer (each, a “Company Broker-Dealer Subsidiary”), or as a municipal securities dealer or municipal advisor, in each case in accordance with any regulatory or legal requirement applicable to such Company Subsidiary (together with Company Broker-Dealer Subsidiaries, the “Company SEC-Registered Subsidiaries”). Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Company: (i) each Company SEC-Registered Subsidiary is duly registered under the Exchange Act as a broker-dealer, municipal securities dealer or municipal advisor, as applicable, with the SEC and is in compliance with the applicable provisions of the Exchange Act, including applicable net capital requirements and customer protection requirements thereof; (ii) each Company Broker-Dealer Subsidiary is a member in good standing with FINRA and any other applicable SRO and in compliance with all applicable rules and regulations of FINRA and any such SRO of which it is a member or which otherwise has authority over it; (iii) each other Company SEC-Registered Subsidiary is a member in good standing, as required, with the Municipal Securities Rulemaking Board (“MSRB”) and any other applicable SRO and in compliance with all applicable rules and regulations of MSRB and any such SRO of which it is a member or which otherwise has authority over it; (iv) each Company SEC-Registered Subsidiary (and each registered representative thereof) is duly registered, licensed or qualified as required, under, and in compliance with, the applicable laws of all jurisdictions in which it is required to be so registered and each such registration, license or qualification is in full force and effect and in good standing; (v) Company Bank qualifies for the exceptions from the definitions of “broker” and “dealer” under Sections 3(a)(4)(B) and 3(a)(5)(C) of the Exchange Act and regulations thereunder with respect to any brokerage or dealing activities conducted by Company Bank or a division thereof; and (vi) there is no action, suit, proceeding or investigation pending or, to the knowledge of Company, threatened that
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would reasonably be likely to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any such registrations, licenses, exceptions and qualifications.
(b)Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Company, (i) none of the Company SEC-Registered Subsidiaries nor any “associated person” thereof (A) is or has been ineligible to serve as a broker-dealer or an associated person of a broker-dealer under Section 15(b) of the Exchange Act, (B) is subject to a “statutory disqualification” as defined in Section 3(a)(39) of the Exchange Act or (C) is subject to a disqualification that would be a basis for censure, limitations on the activities, functions or operations of, or suspension or revocation of the registration of any Company Broker-Dealer Subsidiary as broker-dealer, municipal securities dealer, government securities broker, government securities dealer or municipal advisor under Section 15, Section 15B or Section 15C of the Exchange Act or any rule of any SRO and (ii) there is no action, suit, proceeding or investigation pending or, to the knowledge of Company, threatened, that is reasonably likely to result in any such person being deemed ineligible as described in clause (A), subject to a “statutory disqualification” as described in clause (B) or subject to a disqualification as described in clause (C).
Section 3.29    Risk Management Instruments. Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, all interest rate swaps, caps, floors, option agreements, futures and forward contracts and other similar derivative transactions and risk management arrangements, whether entered into for the account of Company or any of its Subsidiaries or for the account of a customer of Company or any of its Subsidiaries, were entered into in the ordinary course of business and in accordance with applicable rules, regulations and policies of any Governmental Entity and with counterparties reasonably believed to be financially responsible at the time and are legal, valid and binding obligations of Company or one its Subsidiaries enforceable in accordance with their terms (except as may be limited by the Enforceability Exceptions). Except as would not have, either individually or in the aggregate, a Material Adverse Effect on Company, Company and each of its Subsidiaries has duly performed in all material respects all of its material obligations thereunder to the extent that such obligations to perform have accrued, and, to the knowledge of Company, there are no material breaches, violations or defaults or bona fide allegations or assertions of such by any party thereunder.
Section 3.30    No Other Representations or Warranties.
(a)Except for the representations and warranties made by Company in this Article III, neither Company nor any other person makes any express or implied representation or warranty with respect to Company, its Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and Company hereby disclaims any such other representations or warranties, and Parent and Holdco acknowledge the same. In particular, without limiting the foregoing disclaimer, neither Company nor any other person makes or has made any representation or warranty to Parent or any of its affiliates or representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to Company, any of its Subsidiaries or their respective businesses or (ii) except for the representations and warranties made by Company in this Article III, any oral or written information presented to Parent or any of its affiliates or representatives in
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the course of their due diligence investigation of Company, the negotiation of this Agreement or in the course of the transactions contemplated hereby.
(b)Company acknowledges and agrees that neither Parent nor any other person on behalf of Parent has made or is making, and Company has not relied upon, any express or implied representation or warranty other than those contained in Article IV.
ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES
Except (i) as disclosed in the disclosure schedule delivered by Parent Parties to Company prior to the execution hereof (the “Parent Disclosure Schedule”) (it being understood that (a) no item is required to be set forth as an exception to a representation or warranty if its absence would not result in the related representation or warranty being deemed untrue or incorrect, (b) the mere inclusion of an item in the Parent Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by Parent Parties that such item represents a material exception or fact, event or circumstance or that such item would reasonably be expected to result in a Material Adverse Effect and (c) any disclosures made with respect to a section of this Article IV shall be deemed to qualify (1) any other section of this Article IV specifically referenced or cross-referenced and (2) other sections of this Article IV to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections or (ii) as disclosed in reports filed with or furnished to the SEC by Parent since January 1, 2020 and prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarly non-specific or cautionary, predictive or forward-looking in nature), Parent Parties hereby represent and warrant to Company as follows:
Section 4.1    Corporate Organization. Parent is duly organized, validly existing and in good standing as a Schedule I bank under the Bank Act (Canada), is a bank holding company duly registered under the BHC Act and has elected to be treated as a financial holding company under the BHC Act. Holdco is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Parent Party has the corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted in all material respects. Each Parent Party is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing, qualification or standing necessary, except where the failure to be so licensed or qualified or to be in good standing would not, either individually or in the aggregate, have a Material Adverse Effect on Parent. A true and complete copy of Parent’s,
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Holdco’s, TDGUS’ and Merger Sub’s Constituent Documents, as in effect as of the date of this Agreement, have been previously been made available by Parent to Company.
Section 4.2    Capitalization. The authorized capital of Parent consists of an unlimited number of common shares and an unlimited number of Class A first preferred shares.
Section 4.3    Authority; No Violation.
(a)Each Parent Party has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of each Parent Party. The Board of Directors of each Parent Party has determined that the Merger, on the terms and conditions set forth in this Agreement, is in the best interests of such company and its shareholders, has adopted and approved this Agreement and Holdco has directed that this Agreement be submitted to its sole stockholder for approval and has adopted a resolution of the foregoing effect. Except for such stockholder approval, no other corporate proceedings on the part of any Parent Party are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each Parent Party and (assuming due authorization, execution and delivery by Company) constitutes a valid and binding obligation of each Parent Party, enforceable against such Parent Party in accordance with its terms (except in all cases as such enforceability may be limited by the Enforceability Exceptions).
(b)Neither the execution and delivery of this Agreement by each Parent Party, nor the consummation by each Parent Party of the transactions contemplated hereby (including the Merger, the Second Step Merger and the Bank Merger), nor compliance by each Parent Party with any of the terms or provisions hereof, will (i) violate any provision of the organizational documents of any Parent Party, as applicable or (ii) assuming that the consents and approvals referred to in Section 4.4 are duly obtained, (x) violate any law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to any Parent Parties or any of their Subsidiaries or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of any Parent Party or any of their Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which any Parent Party or any of their Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clauses (x) and (y) above) for such violations, conflicts, breaches, defaults, terminations, cancellations, accelerations or creations that either individually or in the aggregate would not have a Material Adverse Effect on Parent.
Section 4.4    Consents and Approvals. Except for (a) the filing of the applications, filings or notices to or with the Governmental Entities, Regulatory Agencies and SROs listed in Annex A and approval of or non-objection to such applications, filings and notices, (b) the filing with the SEC of the Proxy Statement, and (c) the filing of the Certificates of Merger with the Tennessee Secretary pursuant to the TBCA and Delaware Secretary pursuant
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to the DGCL, no consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (i) the execution and delivery by each of Parent Party of this Agreement or (ii) the consummation by each Parent Party of the Merger, the Second Step Merger and the other transactions contemplated hereby (including the Bank Merger). As of the date hereof, Parent Parties have no knowledge of any reason related to Parent or its Subsidiaries why the necessary regulatory approvals and consents will not be received to permit consummation of the Mergers on a timely basis (including any reason why the relevant statutory factors related to such approvals and consents will not be satisfied).
Section 4.5    Broker’s Fees. None of Parent, Holdco or any of their respective Subsidiaries, nor any of their respective officers or directors, has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement, other than J.P. Morgan Securities LLC.
Section 4.6    Legal and Regulatory Proceedings.
(a)Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Parent, neither Parent, Holdco nor any of their Subsidiaries is a party to any, and there are no outstanding or pending or, to the knowledge of Parent, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Parent, Holdco or any of their Subsidiaries or any of their current or former directors or executive officers or challenging the validity or propriety of the transactions contemplated by this Agreement.
(b)Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Parent, there is no injunction, order, judgment, decree, or regulatory restriction imposed upon Parent, Holdco, any of their Subsidiaries or their assets.
Section 4.7    Compliance with Applicable Law.
(a)Parent, Holdco and each of their Subsidiaries hold, and have at all times since January 1, 2020, held, all licenses, registrations, franchises, certificates, variances, permits charters and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and pursuant to each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold nor the cost of obtaining and holding such license, registration, franchise, certificate, variance, permit, charter or authorization (nor the failure to pay any fees or assessments) would, either individually or in the aggregate, have a Material Adverse Effect on Parent, and, to the knowledge of Parent, no suspension or cancellation of any such necessary license, registration, franchise, certificate, variance, permit, charter or authorization is threatened.
(b)Except as would not, either individually or in the aggregate, have a Material Adverse Effect on Parent, Parent, Holdco and each of their Subsidiaries have complied with and are not in default or violation under any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to Parent, Holdco or any of their Subsidiaries, including (i) all applicable laws and regulations (and publicly posted policies)
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relating to the privacy and security of Personal Data and (ii) the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, Title V of the Gramm-Leach-Bliley Act, any and all sanctions or regulations enforced by the Office of Foreign Assets Control of the United States Department of Treasury and any other law, policy or guideline relating to bank secrecy, discriminatory lending, financing or leasing practices, consumer protection, money laundering prevention, foreign assets control, U.S. sanctions laws and regulations, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act, the Flood Disaster Protection Act of 1973 (as amended) and the National Flood Insurance Act of 1968 and the implementing regulations thereunder, the CARES Act, Pandemic Measures and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Parent, Holdco and their Subsidiaries have established and maintain a system of internal controls designed to ensure compliance by Parent, Holdco and their Subsidiaries with applicable financial recordkeeping and reporting requirements of applicable money laundering prevention laws in jurisdictions where Parent, Holdco and their Subsidiaries conduct business.
(c)Parent Bank has, and at all times during the past three (3) years has had, a Community Reinvestment Act rating no lower than “Outstanding”.
(d)As of the date hereof, there is no dispute or other proceeding pending between Parent or Parent Bank or any of their Subsidiaries and any community groups relating to Parent or Parent Bank, and, to the knowledge of Parent, no such dispute or other proceeding has been threatened, in each case, that could reasonably be expected to materially delay the receipt of, or impair the ability to obtain, all of the Requisite Regulatory Approvals.
(e)None of Parent, Holdco, or any of their Subsidiaries, or to the knowledge of Parent, any director, officer, employee, agent or other person acting on behalf of Parent, Holdco or any of their Subsidiaries has, directly or indirectly, (i) used any funds of Parent, Holdco or any of their Subsidiaries for unlawful contributions, unlawful gifts, unlawful entertainment or other expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of Parent, Holdco or any of their Subsidiaries, (iii) violated any provision that would result in the violation of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law, (iv) established or maintained any unlawful fund of monies or other assets of Parent, Holdco or any of their Subsidiaries, (v) made any fraudulent entry on the books or records of Parent, Holdco or any of their Subsidiaries or (vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business, to obtain special concessions for Parent, Holdco or any of their Subsidiaries, to pay for favorable treatment for business secured or to pay for special concessions already obtained for Parent, Holdco or any of their Subsidiaries, or is currently subject to any United States sanctions administered by the
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Office of Foreign Assets Control of the United States Treasury Department, except, in each case, as would not, either individually or in the aggregate, have a Material Adverse Effect on Parent.
(f)As of the date hereof, each of TDGUS and Parent Bank is “well-capitalized” (as such term is defined in the relevant regulation of the institution’s primary federal regulator) and, as of the date hereof, to the knowledge of Parent, neither Parent nor any of its Subsidiaries is aware of any fact, event or circumstance that would result in TDGUS and Parent Bank not being “well-capitalized” within one year from the date of this Agreement.
Section 4.8    Actions by Regulatory Agencies. Subject to Section 9.14, neither Parent, Holdco nor any of their Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since January 1, 2020, a recipient of any supervisory letter from, or since January 1, 2020, has adopted any policies, procedures or board resolutions at the request or suggestion of, any Regulatory Agency or other Governmental Entity that currently restricts in any material respect or would reasonably be expected to restrict in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management, its business or its ability to consummate the transactions contemplated hereby in a timely manner (each, whether or not set forth in the Parent Disclosure Schedule, a “Parent Regulatory Agreement”), nor has Parent, Holdco or any of their Subsidiaries been advised in writing, or to Parent’s knowledge, orally, since January 1, 2020, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such Parent Regulatory Agreement.
Section 4.9    Parent Information. The information relating to Parent and its Subsidiaries that is provided by Parent or its representatives for inclusion in (a) the Proxy Statement, on the date it (or any amendment or supplement thereto) is first mailed to holders of Company Common Stock or at the time of the Company Meeting, (b) the documents and financial statements of Parent incorporated by reference in the Proxy Statement or any amendment or supplement thereto or (c) any other document filed with any other Regulatory Agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement relating to Parent and its Subsidiaries and other portions within the reasonable control of Parent will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation or warranty is made by Parent with respect to statements made or incorporated by reference therein based on information provided or supplied by or on behalf of Company or its Subsidiaries for inclusion in the Proxy Statement.
Section 4.10    Availability of Funds. As of the date of this Agreement, Parent has sufficient funds or access thereto, and Parent will at the Closing have immediately available funds in cash, to pay when due all amounts payable by it hereunder and to fulfill its obligations hereunder. Parent acknowledges that the obligations of Parent under this Agreement are not contingent upon or subject to any conditions regarding Parent’s, its Affiliates’, or any other
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Person’s ability to obtain financing or otherwise to raise capital for the consummation of the Transactions, including the payment of the Merger Consideration.
Section 4.11    No Other Representations or Warranties.
(a)Except for the representations and warranties made by each Parent Party in this Article IV, no Parent Party nor any other person makes any express or implied representation or warranty with respect to Parent Parties, their respective Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and each Parent Party hereby disclaims any such other representations or warranties and Company acknowledges the same. In particular, without limiting the foregoing disclaimer, no Parent Party nor any other person makes or has made any representation or warranty to Company or any of its affiliates or representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to Parent, any of its Subsidiaries or their respective businesses or (ii) except for the representations and warranties made by Parent Parties in this Article IV, any oral or written information presented to Company or any of its affiliates or representatives in the course of their due diligence investigation of Parent Parties, the negotiation of this Agreement or in the course of the transactions contemplated hereby.
(b)Each Parent Party acknowledges and agrees that neither Company nor any other person has made or is making, and Parent and Holdco have not relied on, any express or implied representation or warranty other than those contained in Article III.
ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1    Conduct of Business Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as (i) expressly contemplated or permitted by this Agreement (including as set forth in the Company Disclosure Schedule), (ii) required by law, (iii) may be necessary or commercially reasonable in response to a Pandemic or Pandemic Measures, subject to Company providing Parent with advance notice in respect of any such action (unless it is not reasonably practicable under the circumstances to provide such prior notice, in which case Company shall provide notice to Parent as soon as reasonably practicable) or (iv) consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned or delayed), Company shall, and shall cause each of its Subsidiaries to, (A) conduct its business in the ordinary course in all material respects and (B) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships.
Section 5.2    Company Forbearances. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth in the Company Disclosure Schedule, as expressly contemplated or permitted by this Agreement or as required by law, Company shall not, and shall not permit any of its Subsidiaries to, without
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the prior written consent of Parent (such consent not to be unreasonably withheld, conditioned or delayed):
(a)other than in the ordinary course of business, incur any indebtedness for borrowed money (other than indebtedness of Company or any of its wholly-owned Subsidiaries to Company or any of its wholly-owned Subsidiaries, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity (it being understood and agreed that incurrence of indebtedness in the ordinary course of business shall include the creation of deposit liabilities, issuances of letters of credit and commercial paper, purchases of federal funds, borrowings from the Federal Home Loan Bank, sales of certificates of deposit, entry into repurchase agreements and satisfaction of legal requirements in the exercise of trust powers, in each case, on terms and in amounts consistent with past practice);
(b)
(i)adjust, split, combine or reclassify any capital stock;
(ii)make, declare, pay or set a record date for any dividend, or any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or other equity or voting securities or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) or exchangeable into or exercisable for any shares of its capital stock or other equity or voting securities, including any securities of Company or Company Subsidiary, except (A) regular quarterly cash dividends by Company at a rate not in excess of $0.15 per share of Company Common Stock, (B) dividends paid by any of the Company Subsidiaries to Company or any of its wholly-owned Subsidiaries, (C) dividends provided for and paid on Company Preferred Stock in accordance with the terms of such Company Preferred Stock and (D) the acceptance of shares of Company Common Stock as payment for the exercise price of Company Options or for withholding Taxes incurred in connection with the exercise of Company Options or the vesting or settlement of other Company Equity Awards, in each case, in accordance with past practice and the terms of the applicable Stock Plans and award agreements thereunder;
(iii)grant any stock options, restricted stock units, performance stock units, phantom stock units, restricted shares or other equity-based awards or interests, or grant any person any right to acquire (or any right to payment the amount of which is determined in whole or in part based on the value of) any securities of Company or any Company Subsidiary; or
(iv)issue, sell, transfer, encumber or otherwise permit to become outstanding any shares of capital stock or voting securities or equity interests or securities convertible (whether currently convertible or convertible only after the passage of time of the occurrence of certain events) or exchangeable into, or exercisable for, any shares of its capital stock or other equity or voting securities, including any securities of Company or any Company Subsidiary, or any options, warrants, or other rights of any kind to acquire any shares of capital stock or other equity or voting securities, including any securities of Company or any Company Subsidiary, except pursuant to the exercise of Company
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Options or the settlement of other Company Equity Awards, in each case, which are outstanding as of the date hereof, in accordance with their terms as in effect as of the date hereof;
(c)sell, transfer, mortgage, encumber, abandon, allow to lapse, license, lease or otherwise dispose of any of its material properties, rights or assets or any business to any individual, corporation or other entity other than a wholly-owned Subsidiary, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, in each case, other than in the ordinary course of business or pursuant to contracts or agreements in force at the date of this Agreement and set forth on Section 5.2(c) of the Company Disclosure Schedule;
(d)except for foreclosure or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith in the ordinary course of business, make any material investment in or acquisition of (whether by purchase of stock or securities, contributions to capital, property transfers, merger or consolidation, formation of a joint venture or otherwise) any other person or the property or assets of any other person, in each case, other than a wholly-owned Company Subsidiary;
(e)in each case, except for transactions in the ordinary course of business, (i) terminate, materially amend, or waive any material provision of, any Material Contract, or make any change in any instrument or agreement governing the terms of any of its securities, other than normal renewals of contracts without material adverse changes of terms with respect to Company or its Subsidiaries or (ii) enter into (or thereafter terminate, materially amend, or waive any material provision of) any contract that would constitute an Material Contract if it were in effect on the date of this Agreement, except entry into any contract to replace a Material Contract that Company does not reasonably expect will materially reduce the expected business or economic benefits to, or impose additional material obligations on, Company and its Subsidiaries under such contract;
(f)except as required under applicable law or the terms of any Company Benefit Plan existing as of the date hereof, as applicable: (i) enter into, establish, adopt, amend or terminate any Company Benefit Plan, or any arrangement that would be a Company Benefit Plan if in effect on the date hereof, other than routine administrative amendments that would not materially increase the benefits provided thereunder or the cost thereof to Company and its Subsidiaries, (ii) increase the compensation or benefits payable to any current or former employee, officer, director or individual consultant, other than increases to current employees and officers (w) in connection with a promotion or change in responsibilities permitted under clause (viii) of this Section 5.2(f) and to a level consistent with similarly situated peer employees, (x) in base salary or wages or target annual cash bonus opportunity that is in the ordinary course of business consistent with past practice and with respect to an employee who is not an “executive officer” (as defined in Rule 3b-7 promulgated under the Exchange Act) as set forth on Section 5.2(f)(ii)(x) of the Company Disclosure Schedule, (y) the payment of incentive compensation for completed performance periods based upon corporate performance, the performance of such employee and, if applicable, such employee’s business or (z) changes in health and welfare benefits that are generally applicable to all Company employees in the ordinary course, in each case determined in accordance with the terms of the applicable Company Benefit Plan and in the ordinary course of business consistent with past practice, (iii)
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pay or award, or commit to pay or award, any bonuses or incentive compensation to any current or former employee, officer, director or individual consultant, other than contemplated by clause (ii)(z) above, (iv) accelerate the payment, vesting or funding of or under any Company Benefit Plan or of any compensation or benefit, (v) grant to any current or former employee, officer, director or individual consultant any right to reimbursement, indemnification or payment for any Taxes, including any Taxes incurred under Section 409A or 4999 of the Code, (vi) with respect to any Company Benefit Plan, (x) fund any rabbi trust or similar arrangement or in any other way secure the payment of compensation or benefits under any Company Benefit Plan or (y) except as may be required by GAAP, change any actuarial or other assumption used to calculate the funding obligations with respect to such Company Benefit Plan or change the manner in which contributions are made or the basis on which contributions are calculated with respect to such Company Benefit Plan, in each case, except in the ordinary course of business consistent with past practice, (vii) terminate the employment or services of any “executive officer” (as defined in Rule 3b-7 promulgated under the Exchange Act), other than for cause or (viii) hire any employee, or promote any employee to a position of “executive officer” (as defined in Rule 3b-7 promulgated under the Exchange Act);
(g)enter into, establish or adopt any collective bargaining or similar agreement with any union, works council, or other labor organization, or recognize any union, works council, or other labor organization as the representative of any of the employees of Company or any of its Subsidiaries;
(h)settle any material claim, suit, action or proceeding, except for such settlements involving monetary remedies not in excess of $5,000,000.00 individually or $10,000,000.00 in the aggregate (in each case excluding payment of any net insurance proceeds) and that would not impose any material restriction on, or create any adverse precedent that would be material to, the business of it or its Subsidiaries or the Surviving Corporation after consummation of the Mergers;
(i)amend its charter, its bylaws or comparable governing documents of its Subsidiaries that are “significant subsidiaries” within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(j)materially restructure or materially change its investment securities, wholesale funding, BOLI or derivatives portfolios or its interest rate exposure, through purchases, sales or otherwise, or the manner in which any such portfolio is classified or reported;
(k)implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP;
(l)enter into any material new line of business or, other than in the ordinary course of business consistent with past practice, change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and operating, securitization and servicing policies (including any change in the maximum ratio or similar limits as a percentage of its capital exposure applicable with respect to its loan portfolio or any segment thereof), except as required by applicable law, regulation or policies imposed by any Governmental Entity and ordinary course changes to policies or practices in response to changes in the market for similar items;
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(m)(i) make, change or revoke any Tax election, (ii) change an annual Tax accounting period, (iii) adopt or change any Tax accounting method, (iv) file any amended Tax Return, (v) enter into any closing agreement with respect to Taxes, (vi) settle any Tax claim, audit, assessment or dispute or surrender any right to claim a refund of Taxes, (vii) initiate any voluntary disclosure with, or request any ruling from, any Governmental Entity or (viii) incur any material amount of Tax outside of the ordinary course of business;
(n)merge or consolidate itself or any of its Subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its Subsidiaries;
(o)make any loans or extensions of credit, except in the ordinary course of business consistent with past practice, or new loans or extensions of credit in excess of $150,000,000.00 in a single transaction or renewals of loans or extensions of credit in excess of $150,000,000.00, in each case, except pursuant to existing commitments;
(p)make application for the opening, relocation or closing of any, or open, relocate or close any, branch or automated banking facility of Company Bank, other than those pending or planned as of the date of this Agreement set forth in Section 5.2(p) of the Company Disclosure Schedule;
(q)incur any capital expenditures or any obligations or liabilities in respect thereof, except (i) as may be required pursuant to any Material Contract, (ii) any other capital expenditures not to exceed $50,000,000.00 in the aggregate or (iii) capital expenditures necessary for safety and soundness purposes;
(r)make any material adverse change to the security or operation of the IT Assets used in its business or its posted privacy policies, except as required by applicable law;
(s)take any action that is intended or expected to result in any of the conditions to the Merger set forth in Section 7.1 or Section 7.2 not being satisfied;
(t)knowingly take any action (including a business acquisition, sale or other strategic transaction) that would reasonably be expected to prevent, impede or delay the consummation of the transactions contemplated hereby, including the Merger, or impair Company’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby, including the Merger, on a timely basis; or
(u)agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of, any of the actions prohibited by this Section 5.2.
Section 5.3    Parent Forbearances. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth in the Parent Disclosure Schedule, as expressly contemplated or permitted by this Agreement or as required by law, Parent shall not, and shall not permit any of its Subsidiaries to, without the prior
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written consent of Company (such consent not to be unreasonably withheld, conditioned or delayed):
(a)amend the Constituent Documents of Parent or any of its Subsidiaries in a manner that would impair Parent’s or Holdco’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby, including the Merger and the Bank Merger, on a timely basis;
(b)take any action that is intended or expected to result in any of the conditions to the Merger set forth in Section 7.1 or Section 7.2 not being satisfied;
(c)knowingly take any action (including a business acquisition, sale or other strategic transaction) that would reasonably be expected to prevent, materially impede or materially delay the consummation of the transactions contemplated hereby, including the Merger, or materially impair Parent’s or Holdco’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby, including the Merger, on a timely basis; or
(d)agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of, any of the actions prohibited by this Section 5.3.
ARTICLE VI

ADDITIONAL AGREEMENTS
Section 6.1    Regulatory Matters.
(a)Promptly after (and, in any event, within forty-five (45) days of) the date of this Agreement, Company shall prepare and file with the SEC the Proxy Statement. Company shall provide Parent with a reasonable period of time to review the Proxy Statement and any amendments thereto prior to filing and shall reasonably consider any comments from Parent. Company shall use its reasonable best efforts to clear for mailing the preliminary Proxy Statement and, subject to the immediately preceding sentence, Company shall promptly file and distribute to the shareholders of Company any supplement or amendment to the Proxy Statement that Company has reasonably determined, after consultation with outside counsel, is required by applicable law.
(b)The parties hereto shall, and shall cause their respective Subsidiaries to, cooperate and use their reasonable best efforts to (i) take, or cause to be taken, all actions necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, (ii) promptly prepare and file all necessary documentation, to effect all applications, notices, petitions, registrations and any other filings set forth on Annex A (the “Requisite Regulatory Approvals”), and to make such filings within thirty (30) days of the date of this Agreement (subject to the timely receipt by Parent of all necessary information from Company and Company Subsidiaries as Parent may reasonably request for the preparation of such filings), (iii) promptly prepare all documentation (including in response to information requests from Regulatory Agencies and Governmental Entities), and make all
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filings, (iv) obtain as promptly as practicable all permits, consents, approvals, waivers and any other authorizations of all third parties, Regulatory Agencies and Governmental Entities (and the expiration or termination of all statutory waiting periods in respect thereof) in each case which are necessary or advisable to consummate the transactions contemplated by this Agreement (including the Mergers) as timely as possible, and (v) comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such Regulatory Agencies and Governmental Entities. Parent and Company shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case, subject to applicable laws relating to the exchange of information, all the information relating to Company or Parent, as the case may be, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Regulatory Agency or Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with respect to obtaining all permits, consents, approvals and authorizations of all third parties, Regulatory Agencies and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated in this Agreement, and each party shall consult with the other in advance of any meeting or conference with any Regulatory Agency or Governmental Entity in connection with the transactions contemplated by this Agreement and, to the extent permitted by such Regulatory Agency or Governmental Entity, give the other party and/or its counsel the opportunity to attend and participate in such meetings and conferences; provided, that each party shall promptly advise the other party with respect to substantive matters that are addressed in any meeting or conference with any Regulatory Agency or Governmental Entity in connection with or affecting the transactions contemplated by this Agreement which the other party does not attend or participate in, to the extent permitted by such Regulatory Agency or Governmental Entity and subject to applicable law and Section 9.14.
(c)In furtherance and not in limitation of the foregoing, each party shall use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the Closing. Notwithstanding the foregoing, nothing contained in this Agreement shall be deemed to require Parent, Holdco, Company or their respective Subsidiaries (and Company and its Subsidiaries shall not be permitted without the prior written consent of Parent) to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the foregoing permits, consents, approvals and authorizations of Governmental Entities and Regulatory Agencies that would have a Material Adverse Effect on Parent and its Subsidiaries, taken as a whole (measured on a pro forma basis after giving effect to the transactions contemplated hereby, including the Merger and the Bank Merger) (a “Materially Burdensome Regulatory Condition”).
(d)Parent, Holdco and Company shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Requisite Regulatory Approvals, the Proxy Statement or any other statement, filing, notice or application made by or on behalf of Parent, Holdco and Company or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger, the Bank Merger and the other transactions contemplated by this Agreement.
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(e)Parent, Holdco and Company shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained, or that the receipt of any such approval will be materially delayed.
Section 6.2    Access to Information.
(a)To the extent permitted by applicable laws and as may be reasonable in light of Pandemic Measures, for the purposes of verifying the representations and warranties of Company and preparing for the Merger, the Second Step Merger, the Bank Merger and the other matters contemplated by this Agreement, Company shall, and shall cause each of its Subsidiaries to, afford to the officers, employees, accountants, counsel, advisors and other representatives of Parent and Holdco, access upon prior reasonable notice, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments, personnel, information technology systems, and records, and each shall cooperate with Parent and Holdco in preparing to execute after the Effective Time the conversion or consolidation of systems and business operations generally, and, during such period, Company shall, and shall cause its Subsidiaries to, make available to Parent and Holdco (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws or federal or state banking laws (other than reports or documents that Company is not permitted to disclose in accordance with Section 9.14 or otherwise under applicable law) and (ii) all other information concerning its business, properties, information technology systems and personnel as Parent or Holdco may reasonably request. Parent shall use commercially reasonable efforts to minimize any interference with Company’s regular business operations during any such access. Neither Company nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of Company’s customers, jeopardize the attorney-client privilege of the institution in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense or similar agreement between the parties) or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b)Parent and Holdco shall hold all information furnished by or on behalf of Company or any of its Subsidiaries or representatives pursuant to Section 6.2(a) in confidence to the extent required by, and in accordance with, the provisions of the confidentiality letter agreement, dated February 1, 2022, by and between Parent and Company (the “Confidentiality Agreement”).
(c)No investigation by any party or their respective representatives shall affect or be deemed to modify or waive the representations and warranties of the other set forth in this Agreement.
(d)Nothing contained in this Agreement shall give either Parent or Company, directly or indirectly, the right to control or direct the operations of the other party prior to the Effective Time. Prior to the Effective Time, each party shall exercise, consistent with the terms
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and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations.
Section 6.3    Company Shareholder Approval.
(a)Company shall call, give notice of, convene and hold a meeting of its shareholders (the “Company Meeting”) as soon as reasonably practicable after the Proxy Statement is mailed (and in no event later than forty (40) days after such mailing) for the purpose of obtaining (a) the Requisite Company Vote required in connection with this Agreement and the Merger, and (b) if so desired and agreed by Parent, a vote upon other matters of the type customarily brought before a meeting of shareholders in connection with the approval of a merger agreement or the transactions contemplated thereby. Company (and its Board of Directors) shall use its reasonable best efforts to obtain from the shareholders of Company the Requisite Company Vote, including by communicating to its shareholders its recommendation (and including such recommendation in the Proxy Statement) that they adopt and approve this Agreement and the transactions contemplated hereby (the “Company Board Recommendation”).
(b)Company and its Board of Directors shall not (i) withhold, withdraw, modify or qualify in a manner adverse to the other party the Company Board Recommendation, (ii) fail to make the Company Board Recommendation in the Proxy Statement, (iii) adopt, approve, recommend or endorse an Acquisition Proposal or publicly announce an intention to adopt, approve, recommend or endorse an Acquisition Proposal, (iv) fail to publicly and without qualification (A) recommend against any Acquisition Proposal or (B) reaffirm the Company Board Recommendation within ten (10) business days (or such fewer number of days as remains prior to the Company Meeting after an Acquisition Proposal is made public or any request by the other party to do so) or (v) publicly propose to do any of the foregoing (any of the foregoing described in clauses (i) through (v), a “Recommendation Change”).
(c)Notwithstanding anything in this Agreement to the contrary, subject to Section 8.1 and Section 8.2, prior to the receipt of the Requisite Company Vote, the Board of Directors of Company may submit this Agreement to its shareholders without recommendation, in which event the Board of Directors of Company may communicate the basis for its lack of recommendation to its shareholders in the Proxy Statement or an appropriate amendment or supplement thereto to the extent required by law (although the resolutions approving this Agreement as of the date hereof may not be rescinded or amended), if (i)(A) the Board of Directors of Company has received after the date hereof a bona fide Acquisition Proposal which did not result from a breach of Section 6.13(a), which it believes in good faith, after receiving the advice of its outside counsel and its financial advisors, constitutes a Superior Proposal (in which event, subject to compliance with the entirety of this Section 6.3(c) and prior to the receipt of the Requisite Company Vote, the Board of Directors of Company may cause Company to terminate this Agreement pursuant to Section 8.1(g) in order to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal) or (B) an Intervening Event has occurred, and (ii) the Board of Directors of Company, after receiving the advice of its outside counsel and its financial advisors, determines in good faith that failure to take such actions would be inconsistent with its fiduciary duties under applicable law, in each case, if, but only if, (1) Company has complied in all material respects with Section 6.13(a), (2) Company delivers to Parent at least three (3) business days’ prior written notice of its intention to take such action, and furnishes to Parent a reasonable description of the events or circumstances giving rise to its determination to
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take such action (including, in the event such action is taken in response to an Acquisition Proposal, the identity of the person making such Acquisition Proposal, a copy of the proposed transaction agreement(s) and all other documents relating to such Acquisition Proposal), (3) prior to taking such action, Company negotiates, and causes its financial, legal, and other advisors to negotiate, in good faith with Parent, during the three (3) business day period following Company’s delivery of the notice referred to in such sub-clause (2) above (to the extent Parent desires to so negotiate) any revision to the terms of this Agreement that Parent desires to propose, and (4) after the conclusion of such three (3) business day period, the Board of Directors of Company determines in good faith, after giving effect to all of the adjustments or revisions (if any) which may be offered by Parent pursuant to sub-clause (3) above, that, in the case of actions described in clause (i)(A) above, such Acquisition Proposal continues to constitute a Superior Proposal and in case of actions described in either clause (i)(A) or clause (i)(B) above, it nevertheless would be inconsistent with its fiduciary duties under applicable law to make or continue to make the recommendation to the shareholders of Company (it being agreed that, if such actions are being taken in response to an Acquisition Proposal, in the event that, following delivery of the notice referred to in sub-clause (2) above, there is any material revision to the terms of such Acquisition Proposal, including any revision in price or other improvement in economic terms, the three (3) business day period during which the parties agree to negotiate in good faith shall be extended, if applicable, to ensure that at least two (2) business days remain to negotiate subsequent to the time Company notifies Parent of any such material revision (it being understood that there may be multiple extensions)).
(d)Notwithstanding any Recommendation Change, unless this Agreement has been terminated, the Company Meeting shall be convened and this Agreement shall be submitted to the shareholders of Company at such meeting for the purpose of the shareholders of Company considering and voting on approval of this Agreement and any other matters required to be approved by the shareholders of Company in order to consummate the transactions contemplated by this Agreement. Additionally, unless this Agreement has been terminated, Company shall not submit to or for a vote of its shareholders any Acquisition Proposal.
(e)Company shall adjourn or postpone the Company Meeting if (i) as of the date of such meeting there are insufficient shares of Company Common Stock represented (either in person or by proxy) to constitute the quorum necessary to conduct the business of such meeting, (ii) as of the date of such meeting Company has not received proxies representing a sufficient number of shares necessary for the approval of this Agreement by the shareholders of Company, or (iii) required by applicable law in order to ensure that any required supplement or amendment to the Proxy Statement Company was required to provide to its shareholders by applicable law is provided to the holders of Company Common Stock a reasonable amount of time prior to such meeting; provided, that, in the case of clauses (i) and (ii) but not clause (iii), without the prior written consent of Parent, Company shall not adjourn or postpone the Company Meeting for more than seven (7) business days in the case of any individual adjournment or postponement or more than twenty (20) business days in the aggregate.
Section 6.4    Legal Conditions to Merger. Subject in all respects to Section 6.1 of this Agreement, each of Company and Parent shall, and shall cause its Subsidiaries to, use its or their reasonable best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries with respect to the Merger and the Bank Merger and, subject to the conditions set
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forth in Article VII hereof, to consummate the transactions contemplated by this Agreement and (b) to obtain (and to cooperate with the other party to obtain) any material consent, authorization, order or approval of, or any exemption by, any Regulatory Agency, Governmental Entity and any other third party that is required to be obtained by Company or Parent or any of their respective Subsidiaries in connection with the Merger, the Bank Merger and the other transactions contemplated by this Agreement; provided, that with respect to any such third party consents, in no event shall Company or its Subsidiaries be required to (and, without the consent of Parent, shall not) make or agree to make any payments to any third party, concede or agree to concede anything of monetary or economic value, amend or otherwise modify any contract to which it is a party to or bound or commence, defend or participate in any action, in each case in connection with obtaining such third party consents.
Section 6.5    Stock Exchange Delisting. Company shall cooperate with Parent and use reasonable best efforts to take, or cause to be taken, all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable Laws and rules and policies of the New York Stock Exchange to enable the delisting of the Company Common Stock and Company Preferred Stock (other than the Series G Convertible Preferred Stock) from the New York Stock Exchange and the deregistration of the Company Common Stock and such Company Preferred Stock under the Exchange Act as promptly as practicable after the Effective Time. In connection therewith, Company shall promptly provide such information that may be reasonably requested by Parent (including with respect to the holders of such Company Preferred Stock (or depositary shares in respect thereof) to the extent reasonably available). Company shall also provide such other approvals or instructions under the applicable depositary agreements with respect to the Company Preferred Stock that may be reasonably requested by Parent in connection with the transactions contemplated by this Agreement.
Section 6.6    Employee Benefit Plans.
(a)During the period commencing at the Effective Time and ending on the earlier of (x) the first anniversary of the Effective Time and (y) December 31, 2023 (the “Continuation Period”), Parent shall cause the Surviving Corporation to provide (i) each employee of Company or any of its Subsidiaries as of the Effective Time who remains employed by Parent or any of its affiliates (including the Surviving Corporation and its Subsidiaries) following the Effective Time (a “Continuing Employee”) with an annual base salary or base wage rate and a target annual cash bonus opportunity that are, in each case, no less than that provided to such employee by Company and its Subsidiaries immediately prior to the Effective Time, (ii) each Continuing Employee with an annual long-term equity-based incentive opportunity (excluding any merit, transaction-related, retention, recognition, discretionary or other one-time or special grant or award) that is substantially comparable to that provided to such employees by Company and Subsidiaries immediately prior to the Effective Time and (iii) the Continuing Employees with other employee benefits (excluding deferred compensation, change-in-control, retention or transaction-related benefits and defined benefit pension and post-retirement welfare benefits) that are substantially comparable in the aggregate to those (subject to the same exclusions as the foregoing) provided to such employees by Company and its Subsidiaries immediately prior to the Effective Time. During the Continuation Period (and, for such longer period, to the extent required by the terms of the applicable Company Benefit Plan), Parent shall continue to maintain or cause to be maintained, without amendment, Company’s severance policies and plans applicable to Continuing Employees immediately prior to the
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Effective Time as set forth on Section 6.6(a) of the Company Disclosure Schedule (the “Company Severance Plans”), and shall provide, or cause to be provided, to each Continuing Employee whose employment is terminated during the Continuation Period without “cause”, as such term is defined or concept is used for purposes of the applicable Company Severance Plan, or who otherwise experiences a severance-qualifying termination under the applicable Company Severance Plan, with the severance benefits specified in the applicable Company Severance Plan.
(b)With respect to any employee benefit plans of Parent or its Subsidiaries in which any employees of Company or its Subsidiaries become eligible to participate on or after the Effective Time (the “New Plans”), Parent shall or shall cause the Surviving Corporation to: (i) use commercially reasonable efforts to (A) waive all pre-existing condition limitations, exclusions and waiting periods with respect to participation and coverage requirements applicable to each such employee and his or her eligible dependents under any New Plans, except to the extent such pre-existing condition limitations, exclusions or waiting periods would apply under the analogous Company Benefit Plan, and (B) provide each such employee and his or her eligible dependents with credit for the plan year in which the Effective Time occurs for any co-payments or deductibles paid prior to the Effective Time under a Company Benefit Plan (to the same extent that such credit was given under the analogous Company Benefit Plan prior to the Effective Time) in satisfying any applicable deductible or out-of-pocket requirements under any New Plans for the plan year in which the Effective Time occurs; and (ii) recognize all service of each such employee with Company and its Subsidiaries (and their respective predecessors, if applicable) for purposes of vesting under and eligibility to participate in each applicable New Plan; provided, that the foregoing service recognition shall not apply (A) to the extent it would result in duplication of benefits for the same period of services, (B) for purposes of any defined benefit pension plan or benefit plan that provides retiree welfare benefits, (C) for newly-established employee benefit plans sponsored or maintained by Parent or any of its affiliates for which similarly-situated employees of Parent and its affiliates do not receive past service credit, (D) where such period of service was not recognized or credited with Company and its Subsidiaries prior to the Effective Time, or (E) to any benefit plan that is a frozen plan or provides grandfathered benefits.
(c)If requested by Parent in writing at least ten (10) business days prior to the Closing Date, Company shall cause any 401(k) plan sponsored or maintained by Company or any of its affiliates (each, a “Company 401(k) Plan”) to be terminated effective immediately prior to the Closing Date and contingent upon the occurrence of the Closing. In the event that Parent requests that any Company 401(k) Plan be terminated, (i) Company shall provide Parent with evidence that such plan has been terminated (the form and substance of which shall be subject to reasonable review and comment by Parent) not later than the day immediately preceding the Closing Date and (ii) prior to the Closing Date and thereafter (as applicable), Company and Parent shall take any and all action as may be required, including amendments to each Company 401(k) Plan and/or the corresponding 401(k) plan sponsored or maintained by Parent or one of its Subsidiaries (the “Parent 401(k) Plan”), to permit each Continuing Employee to make rollover contributions of “eligible rollover distributions” (within the meaning of Section 401(a)(31) of the Code, including of loans) in cash or notes (in the case of loans) in an amount equal to the eligible rollover distribution portion of the account balance distributable to such Continuing Employee from such Company 401(k) Plan to the corresponding Parent 401(k) Plan upon receipt of a favorable IRS determination letter with respect to the termination of such Company 401(k) Plan. If Parent requests termination of the Company 401(k) Plan prior to the
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Effective Time, the Continuing Employees shall be eligible to participate, effective as of the Effective Time, in the Parent 401(k) Plan and, for the avoidance of doubt, would be eligible to receive the same employer matching contributions as provided to participants in the Parent 401(k) Plan generally (in each case subject to the terms and conditions of such Parent 401(k) Plan).
(d)Parent hereby acknowledges that the transactions contemplated by this Agreement shall constitute a “change in control,” “change of control” or term or concept of similar import of Company and its Subsidiaries under the terms of the Company Benefit Plans. From and after the Effective Time, Parent and the Surviving Corporation shall honor all obligations and rights under the Company Benefit Plans in accordance with their terms (provided, however, that Parent shall maintain the Company Benefit Plans listed on Section 6.6(d) of the Company Disclosure Schedule, in each case, for the period set forth on Section 6.6(d) of the Company Disclosure Schedule and in accordance with the terms of each such Company Benefit Plan as in effect immediately prior to the Effective Time).
(e)Nothing in this Agreement shall confer upon any current or former employee, officer, director, individual independent contractor or consultant of Company or any of its Subsidiaries or affiliates any right to employment or service or to continue in the employ or service of the Surviving Corporation, Company, or any Subsidiary or affiliate thereof, or shall interfere with or restrict in any way the rights of the Surviving Corporation, Company, Parent or any Subsidiary or affiliate thereof to discharge or terminate the services of any employee, officer, director or consultant of Company or any of its Subsidiaries or affiliates at any time for any reason whatsoever, with or without cause. Nothing in this Agreement shall be deemed to (i) establish, amend or modify any Company Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement or (ii) alter or limit the ability of the Surviving Corporation or any of its Subsidiaries or affiliates to amend, modify or terminate any particular Company Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement after the Effective Time. Without limiting the generality of the final sentence of Section 9.11 and subject, in all respects, to the rights given to holders of Company Equity Awards as set forth in the third sentence of Section 9.11, nothing in this Agreement, express or implied, is intended to or shall confer upon any person, other than the parties hereto, including any current or former employee, officer, director or consultant of Company or any of its Subsidiaries or affiliates, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 6.7    Indemnification; Directors’ and Officers’ Insurance.
(a)From and after the Effective Time, Parent shall cause the Surviving Corporation to indemnify and hold harmless and advance expenses as incurred, in each case, to the fullest extent permitted by applicable law, the Company Charter, the Company Bylaws and the governing or organizational documents of any Company Subsidiary, each present and former director, officer or employee of Company or any of its Subsidiaries (in each case, when acting in such capacity) (collectively, the “Company Indemnified Parties”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, whether arising before or after the Effective Time, arising out of, or pertaining to, the fact that such person is or was a director, officer or employee
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of Company or any of its Subsidiaries or is or was serving at the request of Company or any of its Subsidiaries as a director or officer of another person and pertaining to matters, acts or omissions existing or occurring at or prior to the Effective Time, including matters, acts or omissions occurring in connection with the approval of this Agreement and the transactions contemplated by this Agreement; provided, that in the case of advancement of expenses, any Company Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Company Indemnified Party is not entitled to indemnification. The Surviving Corporation shall reasonably cooperate with the Company Indemnified Parties, and the Company Indemnified Parties shall reasonably cooperate with the Surviving Corporation, in the defense of any such claim, action, suit, proceeding or investigation. Without limiting the indemnification and other rights provided in this clause (a), all rights to indemnification and all limitations on liability existing in favor of the Company Indemnified Parties as provided in any indemnification agreement in existence on the date of this Agreement shall survive the Merger and shall continue in full force and effect to the fullest extent permitted by law, and shall be honored by the Surviving Corporation and its Subsidiaries or their respective successors as if they were the indemnifying party thereunder, without any amendment thereto.
(b)For a period of six (6) years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Company (provided, that the Surviving Corporation may substitute therefor policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the Company Indemnified Parties) with respect to claims against the present and former officers and directors of Company or any of its Subsidiaries arising from facts or events which occurred at or before the Effective Time (including the approval of the transactions contemplated by this Agreement); provided, however, that the Surviving Corporation shall not be obligated to expend, on an annual basis, an amount in excess of 300% of the current annual premium paid as of the date hereof by Company for such insurance (the “Premium Cap”), and if such premiums for such insurance would at any time exceed the Premium Cap, then the Surviving Corporation shall cause to be maintained policies of insurance which, in the Surviving Corporation’s good faith determination, provide the maximum coverage available at an annual premium equal to the Premium Cap. In lieu of the foregoing, Parent (or Company, in consultation with, but only upon the consent, of Parent) may (and at the request of Parent, Company shall use its reasonable best efforts to) obtain at or prior to the Effective Time a six (6)-year “tail” policy under Company’s existing directors’ and officers’ insurance policy providing equivalent coverage to that described in the preceding sentence if and to the extent that the same may be obtained for an amount that, in the aggregate, does not exceed the Premium Cap.
(c)The obligations of the Surviving Corporation under this Section 6.7 shall not be terminated or modified after the Effective Time in a manner so as to adversely affect any Company Indemnified Party or any other person entitled to the benefit of this Section 6.7 without the prior written consent of the affected Company Indemnified Party or affected person.
(d)The provisions of this Section 6.7 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Company Indemnified Party and his or her heirs and representatives. If the Surviving Corporation, or any of its successors or assigns, consolidates with or merges into any other entity and is not the continuing or surviving entity of such consolidation or merger, transfers all or substantially all its assets or deposits to
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any other entity or engages in any similar transaction, then in each case, the Surviving Corporation will cause proper provision to be made so that the successors and assigns of the Surviving Corporation will expressly assume the obligations set forth in this Section 6.7.
Section 6.8    Additional Agreements. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement (including any merger between a Subsidiary of Parent, on the one hand, and a Subsidiary of Company, on the other hand) or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, the Second Step Merger or Bank Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by Parent.
Section 6.9    Advice of Changes. Each of Parent and Company shall promptly advise the other of any effect, fact, change, event, circumstance, condition, occurrence or development (i) that has had or would have, either individually or in the aggregate, a Material Adverse Effect on such first party or (ii) that such first party believes would or would reasonably be expected to cause or constitute a material breach of any of its representations, warranties, obligations, covenants or agreements contained in this Agreement or that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition in Article VII; provided, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 6.9, provide a basis for terminating this Agreement or constitute the failure of any condition set forth in Section 7.2 or Section 7.3 to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth in Section 7.2 or Section 7.3 to be satisfied; and provided, further, that the delivery of any notice pursuant to this Section 6.9 shall not cure any breach of, or noncompliance with, any other provision of this Agreement or limit the remedies available to the party receiving such notice.
Section 6.10    Shareholder Litigation. Each party shall give the other party prompt notice of any shareholder litigation against such party or its directors or officers relating to the transactions contemplated by this Agreement. Company shall (i) give Parent the opportunity to participate (at Parent’s expense) in the defense or settlement of any such litigation, (ii) give Parent a reasonable opportunity to review and comment on all filings or responses to be made by Company in connection with any such litigation, and will in good faith take such comments into account and (iii) not agree to settle any such litigation without Parent’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, that Parent shall not be obligated to consent to any settlement which does not include a full release of Parent and its affiliates or which imposes an injunction or other equitable relief after the Effective Time upon the Surviving Corporation or any of its affiliates.
Section 6.11    Commitments to the Community. Prior to the Closing Date, Company shall establish a new charitable foundation incorporating the name “TD” or “Toronto-Dominion” (with such name to be selected by Parent) (the “New Foundation”) under the laws of the State of Delaware, focused on community support in the Memphis, Tennessee metro area and the other markets in which Falcon Bank operates as of the date hereof, subject to the guidelines and requirements set forth in Annex B. The initial bylaws of the New Foundation shall be
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consistent with Annex B in a form to be mutually agreed by Company and Parent (each acting reasonably); provided¸ that any changes to such bylaws shall require the prior approval of Parent. The New Foundation shall provide Parent with reports periodically (but not less than semi-annually) regarding the New Foundation’s activities, contributions and grants (including the identity of the recipients thereof). Company hereby commits to contribute to the New Foundation an amount in cash equal to $40,000,000. Such contribution will be made by the Surviving Corporation on the Closing Date (and immediately following the Merger). Prior to the Closing, Company will not amend, supplement or modify the bylaws or other organizational documents of Company’s existing foundations without the prior written consent of Parent. The Surviving Corporation, as the sole member of the existing foundations, will have the right to replace directors or trustees of Company’s existing foundations. Except for the New Foundation, prior to the Closing, Company shall not, and shall not permit any of its subsidiaries to, establish any other charitable foundations.
Section 6.12    Operations of Parent Bank. Parent intends to maintain significant business, employment and community engagement in the Memphis, Tennessee metro area following the Closing.
Section 6.13    Acquisition Proposals.
(a)Company shall not, and shall cause its Subsidiaries not to, and shall use its reasonable best efforts to cause its and their officers, directors, employees, agents, advisors and representatives (collectively, “Representatives”) not to, directly or indirectly,  initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to any Acquisition Proposal,  engage or participate in any negotiations with any person concerning any Acquisition Proposal,  provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any Acquisition Proposal (except to notify a person that has made or, to the knowledge of such party, is making any inquiries with respect to, or is considering making, an Acquisition Proposal, of the existence of the provisions of this Section 6.13) or  unless this Agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement (whether written or oral, binding or nonbinding) (other than an Acceptable Confidentiality Agreement entered into in accordance with this Section 6.13) in connection with or relating to any Acquisition Proposal (any such agreement, an “Alternative Acquisition Agreement”). Notwithstanding the foregoing, in the event that after the date of this Agreement and prior to the receipt of the Requisite Company Vote, Company receives an unsolicited bona fide written Acquisition Proposal that did not result from or arise in connection with a breach of this Section 6.13(a), Company may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the Acquisition Proposal if the Board of Directors of Company concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors) that failure to take such actions would be inconsistent with its fiduciary duties under applicable law; provided, that, prior to furnishing any confidential or nonpublic information permitted to be provided pursuant to this sentence, Company shall have provided such information to Parent and shall have entered into a confidentiality agreement with the person making such Acquisition Proposal on terms no less favorable to Company than the Confidentiality Agreement
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(“Acceptable Confidentiality Agreement”), which confidentiality agreement shall not provide such person with any exclusive right to negotiate with Company. Company will, and will cause its Representatives to, immediately cease and cause to be terminated any activities, discussions, or negotiations conducted before the date of this Agreement with any person other than Parent with respect to any Acquisition Proposal. Company will promptly (within twenty-four (24) hours) advise Parent following receipt of any Acquisition Proposal or any inquiry which could reasonably be expected to lead to an Acquisition Proposal and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or Acquisition Proposal), will provide Parent with an unredacted copy of any such Acquisition Proposal and any draft agreements, proposals or other materials received in connection with any such inquiry or Acquisition Proposal, and will keep Parent apprised of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or Acquisition Proposal. Company shall use its reasonable best efforts to enforce any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof.
(b)As used in this Agreement, “Acquisition Proposal” shall mean, other than the transactions contemplated by this Agreement, any offer, proposal or inquiry relating to, or any third-party indication of interest in, (i) any acquisition or purchase, direct or indirect, of twenty-five percent (25%) or more of the consolidated assets of Company and its Subsidiaries or twenty-five percent (25%) or more of any class of equity or voting securities of Company or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of Company, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning twenty-five percent (25%) or more of any class of equity or voting securities of Company or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of Company or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Company or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of Company.
(c)As used in this Agreement, “Superior Proposal” means a bona fide written Acquisition Proposal that the Board of Directors of Company determines, in good faith, after taking into account all legal, financial, regulatory and other aspects of such proposal (including the amount, form and timing of payment of consideration, the financing thereof, any associated break-up or termination fees, including those provided for in this Agreement, expense reimbursement provisions and all conditions to consummation) and the person making the proposal, and after consulting with its financial advisor (which shall be a nationally recognized investment banking firm) and outside legal counsel, is (i) more favorable from a financial point of view to Company’s shareholders than the transactions contemplated by this Agreement (taking into account any proposal by Parent to amend the terms of this Agreement pursuant to Section 6.3(c)) and (ii) reasonably likely to be timely consummated on the terms set forth therein; provided, however, that for purposes of this definition of Superior Proposal, references to “twenty-five percent (25%)” in the definition of Acquisition Proposal shall be deemed to be references to “fifty percent (50%).”
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(d)Nothing contained in this Agreement shall prevent Company or its Board of Directors from complying with Rule 14d-9 and Rule 14e-2 under the Exchange Act or Item 1012(a) of Regulation M-A with respect to an Acquisition Proposal or from making any legally required disclosure to Company’s shareholders; provided, that such rules will in no way eliminate or modify the effect that any action pursuant to such rules would otherwise have under this Agreement.
Section 6.14    Public Announcements. Company and Parent agree that the initial press release with respect to the execution and delivery of this Agreement shall be a release mutually agreed to by the parties and that, to the extent practicable, subsequent releases shall be mutually agreed. Thereafter, each of the parties agrees that no public release or announcement or statement concerning this Agreement or the transactions contemplated hereby shall be issued by any party without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), except (i) as required by applicable law or the rules or regulations of any applicable Governmental Entity or stock exchange to which the relevant party is subject, in which case the party required to make the release or announcement shall consult with the other party about, and allow the other party reasonable time to comment on, such release or announcement in advance of such issuance or (ii) for such releases, announcements or statements that are consistent with other such releases, announcement or statements made after the date of this Agreement in compliance with this Section 6.14. Parent shall consult in good faith with Company on communications with community groups relating to the transactions contemplated hereby, which communications shall be led by Parent with such assistance from Company as may be reasonably requested.
Section 6.15    Change of Method. Parent shall be empowered, at any time prior to the Effective Time, to change the method or structure of effecting the combination of Company and Parent (including the provisions of Article I), and, if and to the extent requested by Parent, Company shall agree to enter into such amendments to this Agreement as Parent may reasonably request in order to give effect to such restructuring; provided, however, that no such change shall (i) alter or change the Merger Consideration, (ii) reasonably be expected (in the sole discretion of Parent exercised in good faith) to have a non-de minimis adverse tax or other economic consequence to Company or any of its Subsidiaries as compared to the method or structure of effecting such combination as reflected herein, (iii) require a vote by or approval of the holders of Company Common Stock or (iv) materially impede or delay the consummation of the transactions contemplated by this Agreement in a timely manner. The parties agree to reflect any such change in an appropriate amendment to this Agreement executed by both parties in accordance with Section 9.1.
Section 6.16    Takeover Statutes. Neither Company nor its Board of Directors shall take any action that would cause any Takeover Statute to become applicable to this Agreement, the Merger, the Second Step Merger, the Bank Merger or any of the other transactions contemplated hereby, and each shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger, the Second Step Merger, the Bank Merger and the other transactions contemplated hereby from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be, applicable to the transactions contemplated hereby, each party and the members of their respective board of directors will grant such approvals and take such actions within its control as are necessary so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms
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contemplated hereby and otherwise act to eliminate or minimize the effects of any Takeover Statute on any of the transactions contemplated by this Agreement, including, if necessary, challenging the validity or applicability of any such Takeover Statute.
Section 6.17    Treatment of Company Indebtedness. In connection with the Second Step Merger and/or Bank Merger, the due and punctual performance and observance of the covenants to be performed by Company or Company Bank, as applicable, under the indentures set forth on Section 6.17 of the Company Disclosure Schedule shall be assumed, as applicable, by Holdco (in connection with the Second Step Merger or, at Parent’s election, in connection with the Bank Merger, if the Bank Merger occurs prior to the Second Step Merger (if any)) or Parent Bank (in connection with the Bank Merger) , along with the due and punctual payment of the principal of (and premium, if any) and interest on, the notes governed thereby (or, if permitted pursuant to the terms thereof, at Parent’s election, retained by the Surviving Corporation). In connection therewith, prior to the Effective Time, Company, Parent and Holdco shall cooperate and use reasonable best efforts to execute and deliver any supplemental indentures, officer’s certificates or other documents, and the parties hereto shall cooperate and use reasonable best efforts to provide any opinion of counsel to the trustee thereof, required to make such assumption effective as of the Second Step Effective Time or effective time of the Bank Merger, as applicable.
Section 6.18    Exemption from Liability Under Section 16(b). Prior to the Effective Time, Parent and Company shall each take such steps as may be necessary or appropriate to cause any disposition of shares of Company Common Stock, shares of Company Preferred Stock or conversion of any derivative securities in respect of such shares of Company Common Stock or Company Preferred Stock in connection with the consummation of the transactions contemplated by this Agreement to be exempt under Rule 16b-3 promulgated under the Exchange Act.
Section 6.19    Dividend Reinvestment. Company shall take all necessary action to terminate any dividend reinvestment plans and stock purchase plans effective as soon as possible after the date of this Agreement (taking into account any Company dividends that have been declared but not yet paid as of the date hereof). In addition, upon the effective termination of any dividend reinvestment plan, each participant’s account will continue to be maintained with Company’s transfer agent in accordance with the terms of such plan.
Section 6.20    Advisory Contract Consents. Company shall cause each Company Advisory Subsidiary to use reasonable best efforts to send to each Advisory Client (as defined below) a consent request (which consent request, to the extent permitted under applicable law and the applicable advisory contract, shall be in the form of a negative consent request) to assignment of the applicable contract for investment services provided in its capacity as an Company Advisory Subsidiary to any person (each such person, an “Advisory Client” and such each contract, an “Advisory Contract”), to the extent required by law, which request shall be sent in a reasonably timely manner following the date hereof. Company agrees to cause each to use
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reasonable best efforts to obtain the consents of each Advisory Client to any assignment of the applicable Advisory Contract, to take effect upon the Closing.
ARTICLE VII

CONDITIONS PRECEDENT
Section 7.1    Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of the parties to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:
(a)Shareholder Approval. The Requisite Company Vote shall have been obtained.
(b)Regulatory Approvals. (i) The Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and (ii) no such Requisite Regulatory Approval shall have resulted in the imposition of any Materially Burdensome Regulatory Condition.
(c)No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or Governmental Entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Mergers or any of the other transactions contemplated by this Agreement shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits or makes illegal consummation of the Mergers or any of the other transactions contemplated by this Agreement.
Section 7.2    Conditions to Obligations of Parent Parties. The obligation of Parent Parties to effect the Merger is also subject to the satisfaction, or waiver by Parent Parties, at or prior to the Effective Time, of the following conditions:
(a)Representations and Warranties. The representations and warranties of Company set forth in Section 3.2(a), and Section 3.8(a) (in each case after giving effect to the lead-in to Article III) shall be true and correct (other than, in the case of Section 3.2(a), such failures to be true and correct as are de minimis), in each case, as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), and the representations and warranties of Company set forth in Section 3.1(a), Section 3.1(b) (but only with respect to Company Bank), Section 3.2(b) (but only with respect to Company Bank) and Section 3.3(a) (in each case, after giving effect to the lead-in to Article III) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date). All other representations and warranties of Company set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to Article III) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and
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warranties speak as of an earlier date, in which case as of such earlier date); provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would have a Material Adverse Effect on Company or the Surviving Corporation. Parent shall have received a certificate dated as of the Closing Date and signed on behalf of Company by the Chief Executive Officer or the Chief Financial Officer of Company to the foregoing effect.
(b)Performance of Obligations of Company. Company shall have performed in all material respects the obligations, covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate dated as of the Closing Date and signed on behalf of Company by the Chief Executive Officer or the Chief Financial Officer of Company to such effect.
Section 7.3    Conditions to Obligations of Company. The obligation of Company to effect the Merger is also subject to the satisfaction, or waiver by Company, at or prior to the Effective Time, of the following conditions:
(a)Representations and Warranties. The representations and warranties of Parent Parties set forth in Section 4.1 and Section 4.3(a) (in each case, after giving effect to the lead-in to Article IV) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date). All other representations and warranties of Parent Parties set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to Article IV) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date); provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would have a Material Adverse Effect on Parent. Company shall have received a certificate dated as of the Closing Date and signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent to the foregoing effect.
(b)Performance of Obligations of Parent Parties. Each Parent Party shall have performed in all material respects the obligations, covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Company shall have received a certificate dated as of the Closing Date and signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent.
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ARTICLE VIII

TERMINATION AND AMENDMENT
Section 8.1    Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of the Requisite Company Vote:
(a)by mutual written consent of Parent and Company;
(b)by either Parent or Company if any Governmental Entity that must grant a Requisite Regulatory Approval has denied approval of the Merger, the Second Step Merger or the Bank Merger and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order, injunction, decree or other legal restraint or prohibition permanently enjoining or otherwise prohibiting or making illegal the consummation of the Merger, the Second Step Merger or the Bank Merger, unless the failure to obtain a Requisite Regulatory Approval shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the obligations, covenants and agreements of such party set forth herein;
(c)by either Parent or Company if the Merger shall not have been consummated on or before the twelve (12) month anniversary of the date of this Agreement (the “Termination Date”), unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the obligations, covenants and agreements of such party set forth herein; provided, that, at the option of either party (if such party would be permitted to terminate this Agreement pursuant to this Section 8.1(c)), the Termination Date may be extended, by giving written notice to the other party, for one three (3)-month period if the Requisite Regulatory Approvals have not yet been obtained;
(d)by either Parent or Company (provided, that the terminating party is not then in material breach of any representation, warranty, obligation, covenant or other agreement contained herein) if there shall have been a breach of any of the obligations, covenants or agreements or any of the representations or warranties (or any such representation or warranty shall cease to be true) set forth in this Agreement on the part of Company, in the case of a termination by Parent, or Parent, in the case of a termination by Company, which breach or failure to be true, either individually or in the aggregate with all other breaches by such party (or failures of such representations or warranties to be true), would constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth in Section 7.2, in the case of a termination by Parent, or Section 7.3, in the case of a termination by Company, and which is not cured within forty-five (45) days following written notice to Company, in the case of a termination by Parent, or Parent, in the case of a termination by Company, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the Termination Date);
(e)by Parent, if (i) Company or the Board of Directors of Company shall have made a Recommendation Change or (ii) Company or the Board of Directors of Company shall have willfully breached its obligations under Section 6.3 or Section 6.12 in any material respect;
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(f)by either Company or Parent, if the Requisite Company Vote shall not have been obtained upon a vote thereon taken at the Company Meeting (including any adjournment or postponement thereof); or
(g)prior to the time the Requisite Company Vote is obtained, by Company in order to enter into an Alternative Acquisition Agreement with respect to a Superior Proposal if the Board of Directors of Company authorizes Company to enter into an Alternative Acquisition Agreement in response to a Superior Proposal, to the extent permitted by and in accordance with Section 6.3; provided, that concurrently with such termination, Company pays, or causes to be paid, to Parent, in immediately available funds the Termination Fee pursuant to Section 8.2.
(h)(i) by the Company, if Parent shall not have paid to the Company the Series G Convertible Preferred Stock Payment within five (5) business days of the date the Articles of Amendment (as defined in the Series G Convertible Preferred Stock Purchase Agreement) have become effective, with the filing thereof accepted by the Secretary of State of the State of Tennessee or (ii) by Parent, if the Company has not filed the Articles of Amendment (as defined in the Series G Convertible Preferred Stock Purchase Agreement) with the Secretary of State of the State of Tennessee (and such filing has not become effective) within five (5) business days of the date hereof, in each case pursuant to the Series G Convertible Preferred Stock Purchase Agreement.
The party desiring to terminate this Agreement pursuant to this Section 8.1 (other than clause (a)) shall give written notice of such termination to the other party in accordance with Section 9.5, specifying the provision or provisions hereof pursuant to which such termination is effected.
Section 8.2    Effect of Termination.
(a)In the event of termination of this Agreement by either Parent or Company as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, and none of Parent, Holdco, Company, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby, except that (i) Section 6.2(b) (Confidentiality), Section 6.14 (Public Announcements), this Section 8.2 and Article IX (other than Section 9.12) shall survive any termination of this Agreement and (ii) notwithstanding anything to the contrary contained in this Agreement, neither Parent nor Company shall be relieved or released from any liabilities or damages arising out of its fraud or its willful and material breach of any provision of this Agreement. “Willful and material breach” shall mean a material breach of, or material failure to perform any of the covenants or other agreements contained in, this Agreement that is a consequence of an act or failure to act by the breaching or non-performing party with actual knowledge that such party’s act or failure to act would, or would reasonably be expected to, result in or constitute such breach of or such failure of performance under this Agreement.
(b)In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide Acquisition Proposal shall have been communicated to or otherwise made known to the Board of Directors of Company or senior management of Company or shall have been made directly to the shareholders of Company or any person shall
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have publicly announced (and not withdrawn at least two (2) business days prior to the Company Meeting) an Acquisition Proposal, in each case, with respect to Company, and (A)(x) thereafter this Agreement is terminated by either Parent or Company pursuant to Section 8.1(c) without the Requisite Company Vote having been obtained (and all other conditions set forth in Section 7.1 and Section 7.3 were satisfied or were capable of being satisfied prior to such termination) or (y) thereafter this Agreement is terminated by Parent pursuant to Section 8.1(d) as a result of a willful and material breach or (z) thereafter this Agreement is terminated by Company or Parent pursuant to Section 8.1(f) and (B) prior to the date that is twelve (12) months after the date of such termination, Company enters into a definitive agreement or consummates a transaction with respect to an Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then Company shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay Parent, by wire transfer of same-day funds, a fee equal to $435,500,000 (the “Termination Fee”); provided, the Termination Fee shall be reduced by an amount equal to the difference between (1) the aggregate proceeds to be received (upon consummation of a Superior Proposal) by Parent with respect to the shares of Company Common Stock resulting from the conversion of the Series G Convertible Preferred Stock held by Parent and (2) $493,569,450; provided, further that for purposes of this Section 8.2(b), all references in the definition of Acquisition Proposal to “twenty-five percent (25%)” shall instead refer to “fifty percent (50%)”.
(c)In the event that this Agreement is terminated by Parent pursuant to Section 8.1(e), then Company shall pay Parent, by wire transfer of same-day funds, the Termination Fee within two (2) business days of the date of termination.
(d)In the event that this Agreement is terminated by Company pursuant to Section 8.1(g), then Company shall pay Parent, by wire transfer of same-day funds, the Termination Fee concurrently with such termination.
(e)Notwithstanding anything to the contrary in this Agreement, but without limiting the right of any party to recover liabilities or damages arising out of the other party’s fraud or willful and material breach of any provision of this Agreement, in no event shall Company be required to pay the Termination Fee more than once. The payment of the Termination Fee as set forth above shall be consideration for the disposition by Parent of its rights under this Agreement
(f)If this Agreement is terminated (1) by Company or Parent pursuant to Section 8.1(b) in the event of any final nonappealable order, injunction, decree or other legal restraint relating to Company or its affiliates and not a Requisite Regulatory Approval; (2) by Company or Parent pursuant to Section 8.1(f) or (3) by Parent pursuant to Section 8.1(h), then no later than two (2) business days after submission of documentation therefor, Company shall pay Parent an amount equal to $25,000,000 to reimburse Parent and its affiliates for fees and expenses (including all fees and expenses of counsel, accountants, investment banking firms and other financial advisors, experts and consultants) incurred or accrued in connection with or related to the transactions contemplated by this Agreement. Any expense reimbursement paid by Company shall be credited against (and therefore reduce the amount of) any Termination Fee that is payable by Company in connection with such termination or that subsequently becomes payable.
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(g)If this Agreement is terminated (1) by Company or Parent pursuant to Section 8.1(b) in the event of failure to receive a Requisite Regulatory Approval or any final nonappealable order, injunction, decree or other legal restraint that relates to a Requisite Regulatory Approval; (2) by Company or Parent pursuant to Section 8.1(c) at a time when the closing conditions in Section 7.1(b) and/or Section 7.1(c) (to the extent any such order, injunction, decree, law, statute, rule or regulation relates to a Requisite Regulatory Approval) have not been satisfied; provided, that if a breach of this Agreement by Company led to either of such conditions not being satisfied, then Parent shall have no reimbursement obligations under this clause (g); or (3) by Company pursuant to Section 8.1(h), then no later than two (2) business days after submission of documentation therefor, Parent shall pay Company an amount equal to $25,000,000 to reimburse Company and its affiliates for fees and expenses (including all fees and expenses of counsel, accountants, investment banking firms and other financial advisors, experts and consultants) incurred or accrued in connection with or related to the transactions contemplated by this Agreement.
(h)Each of Parent and Company acknowledges that the agreements contained in this Section 8.2 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if Company fails promptly to pay the Termination Fee (or if Company or Parent fail to pay any expense reimbursement) due pursuant to this Section 8.2, and, in order to obtain such payment, the other party commences a suit which results in a judgment for the first party to pay the Termination Fee, expense reimbursement or any portion thereof, as applicable, such first party shall pay the costs and expenses of such other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, such first party shall pay interest on such overdue amounts at a rate per annum equal to the “prime rate” published in the Wall Street Journal on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full. The Termination Fee (and any related amounts payable by Company pursuant to this Section 8.2(h)), except in the case of fraud, shall be the sole remedy of Parent in the event of a termination of this Agreement in accordance with this Article VIII pursuant to which the Termination Fee is payable by Company.
ARTICLE IX

GENERAL PROVISIONS
Section 9.1    Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto at any time before or after the receipt of the Requisite Company Vote; provided, however, that after receipt of the Requisite Company Vote, there may not be, without further approval of the shareholders of Company any amendment of this Agreement that requires such further approval under applicable law. This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing signed on behalf of each of the parties hereto.
Section 9.2    Extension; Waiver. At any time prior to the Effective Time, each of the parties hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any
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certificate delivered by such other party pursuant hereto and (c) waive compliance with any of the agreements or satisfaction of any conditions for its benefit contained in this Agreement; provided, however, that after receipt of the Requisite Company Vote, there may not be, without further approval of the shareholders of Company, any extension or waiver of this Agreement or any portion thereof that requires such further approval under applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
Section 9.3    Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, obligations, covenants and agreements in this Agreement (or in any certificate delivered pursuant to this Agreement) shall survive the Effective Time, except for Section 6.7 and for those other obligations, covenants and agreements contained in this Agreement which by their terms apply in whole or in part after the Effective Time.
Section 9.4    Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense.
Section 9.5    Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by e-mail transmission (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a)if to Company, to:
First Horizon Corporation
165 Madison Avenue, 23th floor,
Memphis, TN 38103

Attention:    D. Bryan Jordan
        Tammy LoCascio
Charles Tuggle, Jr.
Email:        [redacted]
        [redacted]
        [redacted]
With a copy (which shall not constitute notice) to:
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Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004

Attention:    H. Rodgin Cohen
        Mitchell S. Eitel
        Stephen M. Salley
Email:         [redacted]
        [redacted]
        [redacted]
and
(b)if to Parent Parties, to:
The Toronto-Dominion Bank
66 Wellington Street West
21st Floor, TD Tower
Toronto, Ontario
Canada M5K 1A2
Attention:    Barbara Hooper
Renu Gupta
Email:        [redacted]
[redacted]
With a copy (which shall not constitute notice) to:    
The Toronto-Dominion Bank
66 Wellington Street West
4th Floor, TD Tower
Toronto, Ontario
Canada M5K 1A2
Attention:    Norie Campbell
        Kashif Zaman
Email:        [redacted]
        [redacted]
and:    
Simpson Thacher and Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention:    Lee Meyerson
        Ravi Purushotham    
Email:        [redacted]
        [redacted]
Section 9.6    Interpretation. The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no
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presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. When a reference is made in this Agreement to Articles, Sections, Annexes, or Schedules, such reference shall be to an Article or Section of or Annex or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The word “or” shall not be exclusive. References to “the date hereof” shall mean the date of this Agreement. As used in this Agreement, the “knowledge” of Company means the actual knowledge of any of the officers of Company listed on Section 9.6 of the Company Disclosure Schedule, and the “knowledge” of Parent means the actual knowledge of any of the officers of Parent listed on Section 9.6 of the Parent Disclosure Schedule. As used in this Agreement, (i) the term “person” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature, (ii) an “affiliate” of a specified person is any person that directly or indirectly controls, is controlled by, or is under common control with, such specified person, and for these purposes “control” means “control” for purposes of the BHC Act and the regulations and formal written guidance of the Federal Reserve Board and (iii) the term “made available” means any document or other information that was (a) provided by one party or its representatives to the other party and its representatives prior to the date hereof, (b) included in the virtual data room of a party prior to the date hereof or (c) filed or furnished by a party with the SEC and publicly available on EDGAR at least one (1) day prior to the date hereof, (iv) “business day” means any day other than a Saturday, a Sunday or a day on which banks in New York, New York or Toronto, Canada are authorized by law or executive order to be closed, (v) the “transaction contemplated hereby” and “transactions contemplated by this Agreement” shall include the Merger, the Second Step Merger and the Bank Merger and (vi) all references to “dollars” or “$” are to United States dollars. The Company Disclosure Schedule and the Parent Disclosure Schedule, as well as all other schedules and all exhibits hereto, shall be deemed part of this Agreement and included in any reference to this Agreement. Nothing contained in this Agreement shall require any party or person to take any action in violation of applicable law.
Section 9.7    Counterparts. This Agreement may be executed in counterparts (including by pdf or other electronic means), all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
Section 9.8    Entire Agreement. This Agreement (including the documents and instruments referred to herein) together with the Confidentiality Agreement constitutes the entire agreement among the parties and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
Section 9.9    Governing Law; Jurisdiction.
(a)This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within the State of Delaware, without regard to any applicable conflicts of law principles (except
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that matters relating to the fiduciary duty of the Board of Directors of Company shall be subject to the laws of the State of Tennessee).
(b)Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the Court of Chancery of the State of Delaware and any state appellate court therefrom within the State of Delaware or, if the Court of Chancery of the State of Delaware declines to accept jurisdiction over a particular matter, any federal or state court of competent jurisdiction located in the State of Delaware (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance with Section 9.5.
Section 9.10    Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE EXTENT PERMITTED BY LAW AT THE TIME OF INSTITUTION OF THE APPLICABLE LITIGATION, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10.
Section 9.11    Assignment; Third-Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 1.8, which is intended to benefit each holder of Company Equity Awards and his or her heirs and representatives and except as otherwise specifically provided in Section 6.7, which is intended to benefit each Company Indemnified Party and his or her heirs and representatives, this Agreement (including the documents and instruments referred to herein) is not intended to and does not confer upon any person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth in this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any
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inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance herewith without notice or liability to any other person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
Section 9.12    Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and, accordingly, that the parties shall be entitled an injunction or injunctions to prevent breaches or threatened breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof (including the parties’ obligation to consummate the Merger), in addition to any other remedy to which they are entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security or a bond as a prerequisite to obtaining equitable relief.
Section 9.13    Severability. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction such that the invalid, illegal or unenforceable provision or portion thereof shall be interpreted to be only so broad as is enforceable.
Section 9.14    Confidential Supervisory Information. Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(b) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Governmental Entity by any party to this Agreement to the extent prohibited by applicable law. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.
Section 9.15    Delivery by Facsimile or Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments or waivers hereto or thereto, to the extent signed and delivered by means of a facsimile machine or by e-mail delivery of a “.pdf” format data file, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format
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data file as a defense to the formation of a contract and each party hereto forever waives any such defense.
Section 9.16    Certain Definitions. As used in this Agreement, the following terms have the meanings set forth below:
Constituent Documents” means the charter documents, bylaws or similar organizational documents of a corporation and comparable organizational documents of other entities.
Environmental Laws” means any federal, state or local law, regulation, order, decree, permit, authorization, common law or agency requirement relating to: (a) the protection or restoration of the environment, health and safety as it relates to hazardous substance exposure or natural resource damages, (b) the handling, use, presence, disposal, release or threatened release of, or exposure to, any hazardous substance or (c) noise, odor, wetlands, indoor air, pollution, contamination or any injury to persons or property from exposure to any hazardous substance.
Exchange Act” means the Securities Exchange Act of 1934, as amended.
Exchange Ratio” means a fraction, (x) the numerator of which is the Merger Consideration and (y) the denominator of which is the average closing price, rounded to the nearest cent, per Parent Common Share on the New York Stock Exchange for the period of ten consecutive trading days immediately preceding (but not including) the Closing Date.
FDIC” means the Federal Deposit Insurance Corporation.
Federal Reserve Board” means the Board of Governors of the Federal Reserve System.
FINRA” means the Financial Industry Regulatory Authority.
GAAP” means U.S. generally accepted accounting principles.
Governmental Entity” means any U.S., Canadian or other non-U.S. federal, state or local governmental or regulatory body, court, judicial authority, arbitrator, administrative agency, commission or SRO.
Intellectual Property” means intellectual property rights in any jurisdiction, whether registered or unregistered, in and to: (i) all trademarks, service marks, brand names, internet domain names, social and mobile media identifiers, logos, symbols, certification marks, trade dress and other indications of source or origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; (ii) inventions, discoveries and ideas, whether patentable or not, in any jurisdiction; patents, applications for patents (including divisionals, continuations, continuations in part and renewal applications), all improvements thereto, and any renewals, extensions or reissues thereof, in any jurisdiction; (iii) nonpublic information, trade secrets and know-how, including processes, technologies, protocols, formulae, prototypes and confidential information and rights
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in any jurisdiction to limit the use or disclosure thereof by any person; (iv) writings and other works, whether copyrightable or not and whether in published or unpublished works, in any jurisdiction; and registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and (v) any similar intellectual property or proprietary rights.
Intervening Event” means any material event, change, effect, development, condition, circumstance or occurrence arising after the date of this Agreement that (I) improves or would be reasonably likely to improve the business, financial condition or results of operations of Company and its Subsidiaries, taken as a whole, (II) is not known by, nor reasonably foreseeable to, the Board of Directors of Company as of the date of this Agreement and (III) does not relate to any Acquisition Proposal, the end or reduction of the Pandemic or the lifting or expiration of the Pandemic Measures; provided, that, for the avoidance of doubt, none of the following shall be considered or taken into account in determining whether an Intervening Event has occurred: (x) changes in the trading price or trading volume of the Company Common Stock (it being understood that the underlying cause of such change may be taken into account to the extent not otherwise excluded by this definition) or (y) the fact alone that Company meets or exceeds any internal or published forecasts or projections for any period (it being understood that the underlying cause of such over-performance by Company may be taken into account to the extent not otherwise excluded by this definition).
Liens” means any liens, claims, title defects, mortgages, pledges, charges, encumbrances and security interests whatsoever.
Material Adverse Effect” means, with respect to Company, Surviving Corporation or Parent, any effect, change, event, circumstance, condition, occurrence or development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (i) the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries taken as a whole (provided, however, that, with respect to this clause (i), Material Adverse Effect shall not be deemed to include the impact of (A) changes, after the date hereof, in GAAP or applicable regulatory accounting requirements, (B) changes, after the date hereof, in laws, rules or regulations (including the Pandemic Measures) of general applicability to companies in the industries in which such party and its Subsidiaries operate, or interpretations thereof by courts or Governmental Entities, (C) changes, after the date hereof, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) conditions affecting the financial services industry generally and not specifically relating to such party or its Subsidiaries (including any such changes arising out of a Pandemic or any Pandemic Measures), (D) changes, after the date hereof, resulting from hurricanes, earthquakes, tornados, naturally-occurring floods or other natural disasters or from any outbreak of any disease or other public health event or public health conditions (including a Pandemic and related Pandemic Measures), (E) public disclosure of the execution of this Agreement, public disclosure or consummation of the transactions contemplated hereby (including any effect on a party’s relationships with its customers or employees) or actions expressly required by this Agreement or that are taken with the prior written consent of the other party in contemplation of the transactions contemplated hereby (it being understood that this clause (E) shall not apply to a breach of any representation or warranty related to the announcement, pendency or consummation of the transactions
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contemplated hereby), or (F) a decline in the trading price of a party’s stock in and of itself or the failure, in and of itself, to meet earnings projections or internal financial forecasts (it being understood that the underlying causes of such decline or failure may be taken into account in determining whether a Material Adverse Effect has occurred), except to the extent otherwise excepted by this proviso); except, with respect to subclauses (A), (B), (C), or (D) to the extent that the effects of such change are disproportionately adverse to the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate), or (ii) the ability of such party to timely consummate the transactions contemplated hereby.
OCC” means the Office of the Comptroller of the Currency.
OSFI” means the Office of the Superintendent of Financial Institutions (Canada).
Pandemic” means any outbreaks, epidemics or pandemics relating to SARS-CoV-2 or Covid-19, or any evolutions or mutations thereof, or any other viruses (including influenza), and the governmental and other responses thereto.
Pandemic Measures” means any quarantine, “shelter in place”, “stay at home”, workforce reduction, social distancing, shut down, closure, sequester or other laws, directives, policies, guidelines or recommendations promulgated by any Governmental Entity, including the Centers for Disease Control and Prevention and the World Health Organization, in each case, in connection with or in response to a Pandemic.
Parent Common Shares” shall mean a common share of Parent.
Permitted Encumbrances” means (i) statutory Liens securing payments not yet due, (ii) Liens for real property Taxes not yet due and payable, (iii) easements, rights of way, and other similar encumbrances that do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties (iv) such imperfections or irregularities of title or Liens as do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties and (v) licenses and similar rights granted with respect to Intellectual Property.
Regulatory Agencies” means (a) any U.S. federal or state regulatory authority, (b) the SEC, (c) the Federal Reserve Board, (d) the FDIC, (e) the OCC, (f) any non-U.S. regulatory authority and (g) any SRO.
SEC” means the Securities and Exchange Commission.
Securities Act” means the Securities Act of 1933, as amended.
SRO” means (x) any “self-regulatory organization” as defined in Section 3(a)(26) of the Exchange Act and (y) any other United States or foreign securities exchange, futures exchange, commodities exchange or contract market.
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Stock Plans” means the Company’s First Horizon Corporation 2021 Incentive Plan, First Horizon Corporation Equity Compensation Plan, First Horizon Corporation 2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, First Horizon Corporation 2002 Bank Director and Advisory Board Member Deferral Plan, First Horizon Corporation 1997 Employee Stock Option Plan, IBERIABANK Corporation 2019 Stock Incentive Plan, IBERIABANK Corporation 2016 Stock Incentive Plan, Amended and Restated IBERIABANK Corporation 2010 Stock Incentive Plan, Capital Bank Financial Corp. 2013 Omnibus Compensation Plan and FNB United Corp. 2012 Incentive Plan, as each can be amended from time to time.
Subsidiary” when used with respect to any person, means any corporation, partnership, limited liability company, bank or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes.
Tax” or “Taxes” means (i) all federal, state, local, and foreign income, excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, duties, excise, windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, levies or like assessments or any charge of any kind in the nature of (or similar to) taxes whatsoever together with all penalties and additions to tax and interest thereon and (ii) any liability for the payment of any amounts of the type described in clause (i) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, as a result of any tax sharing or tax allocation agreement, arrangement or understanding, or as a result of being liable for another person’s taxes as a transferee or successor, by contract or otherwise.
Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, supplied or required to be supplied to a Governmental Entity.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
FIRST HORIZON CORPORATION
By:/s/ D. Bryan Jordan
Name:D. Bryan Jordan
Title:President and Chief Executive Officer
THE TORONTO-DOMINION BANK
By:/s/ Barbara Hooper
Name:Barbara Hooper
Title:Senior Executive Vice President –
Treasury, Corporate Development,
Strategic Sourcing & Real Estate
TD BANK US HOLDING COMPANY
By:/s/ Leo Salom
Name:Leo Salom
Title:President and CEO
FALCON HOLDINGS ACQUISITION CO.
By:/s/ Barbara Hooper
Name:Barbara Hooper
Title:Secretary

[Signature Page to Agreement and Plan of Merger]


EXHIBIT 10.8(g)
Certain Executive Benefits
List of Certain Benefits Available
to Certain Executive Officers
(As in effect February 20, 2022)

The following benefits are available to some or all executive officers (among other persons), but not to all full-time associates of First Horizon.
1.If the Board has authorized a stock repurchase program, an executive may request the repurchase of shares of First Horizon at the day’s volume-weighted average price with no payment of any fees or commissions if the repurchase of the shares is otherwise permissible under the authorized program.
2.First Horizon’s regular disability insurance program is available to associates generally. Associates above a certain grade level, including executive officers, are offered an additional benefit. Executive officers who choose the additional coverage pay the premiums with after-tax dollars.
3.First Horizon makes available or pays for tax preparation, tax consulting, estate planning, and financial counseling services for executive officers. If a preferred provider is used, First Horizon will pay the annual counseling fee (approximately $17,000 for 2021) per person as well as general engagement fees and expenses which are not applied on a per person basis.
4.On occasion spouses of certain associates, including executive officers, are asked by First Horizon, for business reasons, to accompany the associate on a business trip or function. In those cases First Horizon may pay the travel, accommodation, and other expenses of the spouse incidental to the trip or function, some or all of which can result in taxable income for the associate. On occasion First Horizon may provide or pay for a memento, gift, or other gratuity that the associate or spouse receives in connection with the business trip or function.
5.The Chief Executive Officer and the Executive Chairman of the Board are permitted to take personal flights on company aircraft. Personal usage is limited to certain aircraft, is subject to certain situational and other limitations, and may not exceed 25 flight hours per calendar year. In addition, the spouse of each of the Chief Executive Officer and the Executive
Chairman of the Board may accompany them on business trips even if there is no business purpose for their travel.
6.First Horizon provides home security protection for executive officers, provided by third parties and overseen by First Horizon’s corporate security department. When an executive is first covered by this program, First Horizon estimates the assessment, upgrade, installation, and other similar costs to be approximately $20,000. Ongoing monitoring and system maintenance also are included.
7.First Horizon provides a relocation benefit to a wide range of associates, including executive officers, under varying circumstances and subject to certain constraints. The benefit may be in the form of an allowance or a reimbursement of actual expenses, and includes a tax gross up feature.
8.First Horizon requires the Chief Executive Officer to participate in an executive health program selected by First Horizon. The program provides substantially enhanced ongoing health screening and related services. First Horizon pays the expenses associated with attendance, including program fees and incidental expenses such as lodging, meals, and air travel. The program primarily performs screening and diagnostic functions. Accordingly, any treatments that might be recommended as a result of the program generally would be paid in the ordinary course through the health insurance plan selected by the Officer under First Horizon’s broad-based associate health benefit program.
9.First Horizon pays or reimburses the cost of an annual executive-level physical examination for executive officers, to the extent not paid through First Horizon’s broad-based associate health benefit program.
10.The Executive Chairman of the Board is provided with certain perquisites carried over from when he was Chief Executive Officer of IBERIABANK Corporation, consistent with certain contracts First Horizon has with him.
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2021 FORM 10-K ANNUAL REPORT


EXHIBIT 10.8(h)
NEO Salaries 2022
Description of 2022 Salary Rates
for 2021 Named Executive Officers


Annualized salary rates for the executive officers of the First Horizon Corporation who are expected to be named in the executive compensation disclosures of the First Horizon’s 2022 proxy statement in relation to fiscal year 2021 (“2021 Named Executive Officers”) currently are:


NEO Salaries for 2022
Officer Name2022 Salary Rate
D. Bryan Jordan
$1,060,900
Hope Dmuchowski600,000
Daryl G. Byrd1,184,500
Anthony J. Restel700,000
David T. Popwell700,000

The annualized rates shown above are those in effect on the date this exhibit is filed with the First Horizon’s Annual Report on Form 10-K. Salary rates generally continue in effect until they are changed.



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2021 FORM 10-K ANNUAL REPORT


EXHIBIT 21
Subsidiaries
Subsidiaries

The following are lists of consolidated subsidiaries of First Horizon Corporation (“First Horizon”) and of First Horizon Bank (the “Bank”) at December 31, 2021. Each consolidated subsidiary is 100% owned by First Horizon directly or indirectly, except as described below in note (1) to First Horizon’s table and note (2) to the Bank’s table, and all are included in the Consolidated Financial Statements. Entities that are “financial subsidiaries” for regulatory purposes are denoted in this exhibit with FS; FS is not part of any subsidiary’s name.

Consolidated Subsidiaries of First Horizon
EntityType of OwnershipJurisdiction of Incorporation or Organization
First Horizon Bank (1) (Bank subsidiaries are scheduled separately)
DirectTennessee
CB Trustee, LLCDirectNorth Carolina
First Horizon Merger Sub, LLCDirectTennessee
First Horizon Community Development Fund, LLCDirectTennessee
First Horizon Ventures, Inc.DirectTennessee
IBERIA Asset Management Inc. DirectLouisiana
IBERIA CDE, LLCDirectLouisiana
LIBERTY BANCORP DENNING, LLCDirectFlorida
840 Denning LLCIndirectFlorida
Lenders Title CompanyDirectArkansas
American Abstract & Title CompanyIndirectArkansas
Asset Exchange Inc.IndirectArkansas
United Title & Abstract, L.L.C.IndirectLouisiana
United Title of Louisiana, Inc.IndirectLouisiana
Martin & Company, Inc.DirectTennessee
_________________________
    (1)    At December 31, 2021, 300,000 shares of non-voting preferred stock issued by this subsidiary are outstanding and are not owned by First Horizon. That preferred stock has an aggregate liquidation preference amount of $300,000,000 and is not participating with the common stock in the event of liquidation.


Consolidated Subsidiaries of the Bank
Subsidiary of the BankType of Ownership by the BankJurisdiction of Incorporation or Organization
Acadiana Holdings, LLCDirectLouisiana
C1 Trustee, Inc.DirectNorth Carolina
Capital Financial Leasing, LLCDirectDelaware
CB Florida CRE Holdings, LLCDirectFlorida
CBSA Legacy, LLCDirectNorth Carolina
CSB Alabama CRE Holding, LLCDirectAlabama
FHIS, Inc. FS
DirectTennessee
FHN Financial Main Street Advisors, LLCDirectNevada
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2021 FORM 10-K ANNUAL REPORT



EXHIBIT 21
Subsidiaries
Subsidiary of the BankType of Ownership by the BankJurisdiction of Incorporation or Organization
FHN Financial Capital Assets Corp.DirectTennessee
FHN Financial Securities Corp. FS
DirectTennessee
First Horizon Advisors, Inc. FS
DirectTennessee
First Horizon Asset Securities, Inc.DirectDelaware
First Horizon CDE 1, LLCDirectTennessee
First Horizon CDE 2, LLCDirectTennessee
First Horizon CDE 3, LLCDirectTennessee
First Horizon Community Development Enterprises, LLCDirectTennessee
First Horizon Community Investment Group, Inc.DirectTennessee
CC Community Development Holdings, Inc.IndirectTennessee
FHCIG Second Harvest Investment Fund, LLCIndirectTennessee
First Horizon Insurance Agency, Inc FS
DirectGeorgia
First Horizon Insurance Services, Inc FS
DirectTennessee
First Tennessee New Markets CorporationDirectTennessee
FT Building, LLCDirectTennessee
FT Leasing, Inc.DirectTennessee
FTB QOF I, Inc.DirectTennessee
FTB QOF II, Inc.DirectTennessee
FTB QOF III, Inc.DirectTennessee
FTB QOF IV, Inc.DirectTennessee
FTRE Holding, LLCDirectDelaware
First Horizon TE1, LLCIndirectDelaware
First Horizon Preferred Funding, Inc.IndirectDelaware
First Horizon Preferred Funding II, Inc.IndirectDelaware
First Horizon Preferred Funding III, Inc.IndirectDelaware
First Horizon Preferred Funding IV, Inc.IndirectMaryland
FTB Securities Investment II, LLCIndirectDelaware
FT Real Estate Securities Company, Inc.IndirectDelaware
Hickory Venture Capital CorporationDirectAlabama
IB Holdings, LLCDirectLouisiana
IB SPE Management, Inc. Direct Delaware
IBERIA Civic Impact Partners LLCDirect Louisiana
IBERIA Collage Impact Fund, LLC IndirectLouisiana
IBERIA NOCHI Impact Fund I, LLCIndirectLouisiana
IBERIA NOCHI Impact Fund II, LLC IndirectLouisiana
IBERIA Plush Mill Impact Fund, LLCIndirectLouisiana
IBERIA VCOM Impact Fund, LLC IndirectLouisiana
Iberia Corporate Asset Finance, LLCDirectAlabama
Iberia Financial Services, LLCDirectLouisiana
IBERIA INVESTMENT FUND I, LLCDirectLouisiana
IBERIA CommCare Impact Fund LLCIndirectLouisiana
JPO, Inc.DirectTennessee
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2021 FORM 10-K ANNUAL REPORT



EXHIBIT 21
Subsidiaries
Subsidiary of the BankType of Ownership by the BankJurisdiction of Incorporation or Organization
Mercantile Capital CorporationDirectFlorida
OB Florida CRE Holdings, LLCDirectFlorida
Orion Real Estate, LLCDirectNorth Carolina
Southern Community, LLCDirectNorth Carolina

Selected Non-Consolidated Entities
The following are selected entities affiliated with First Horizon and the Bank which were not consolidated with First Horizon or the Bank at December 31, 2021.
NameJurisdiction of Incorporation or Organization
American Horizons Statutory Trust IConnecticut
Capital Bank Statutory Trust IIIConnecticut
Civitas Statutory Trust IDelaware
FNB United Statutory Trust IConnecticut
FNB United Statutory Trust IIDelaware
GreenBank Capital Trust IDelaware
Greene County Capital Trust IIDelaware
IBERIABANK Statutory Trust IConnecticut
IBERIABANK Statutory Trust IIConnecticut
IBERIABANK Statutory Trust VIConnecticut
IBERIABANK Statutory Trust VIIConnecticut
Omni Statutory Trust IConnecticut
Omni Statutory Trust IIConnecticut
Southern Community Capital Trust IIIDelaware
TIBFL Statutory Trust IIIDelaware
VCS Management, LLCNorth Carolina

Other Business Names Used
At December 31, 2021, First Horizon, its subsidiaries, the Bank, the Bank’s subsidiaries, and the Bank’s divisions did business in certain jurisdictions under the following names:
First Horizon
IBERIABANK
First Tennessee Bank
First Horizon Home Loans
First Tennessee Home Loans
First Horizon Housing Corporation
First Tennessee Housing Corporation
First Horizon Equity Lending
FHN Financial
FHN Financial Capital Markets
FHN Financial Portfolio Advisors
FHN Financial Municipal Advisors
First Horizon Advisors
IBERIA Wealth Management
First Horizon Commercial Mortgage Banking
First Horizon Fitness Finance
First Horizon Restaurant Finance
First Horizon Finance Company
PMC Real Estate Capital
Lenders Title Group
Preservation Title
Solomon Parks Title & Escrow
VirtualBank

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2021 FORM 10-K ANNUAL REPORT


Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in registration statement No. 333-219052 on Form S-4 (including post-effective amendment No. 1 thereto on Form S-8), registration statement No. 333-235757 on Form S-4 (including post-effective amendment No. 1 thereto on Form S-8), and registration statements Nos. 333-16225, 333-16227, 333-70075, 333-91137, 333-92145, 333-56052, 333-73440, 333-73442, 333-108750, 333-109862, 333-123404, 333-124297, 333-124299, 333-133635, 333-156614, 333-166818, 333-181162, 333-211120, 333-212850, 333-238038, 333-239877, and 333-255580 on Forms S-8 of our reports dated March 1, 2022, with respect to the consolidated financial statements of First Horizon Corporation (the Company) and the effectiveness of internal control over financial reporting.

Change in Accounting Principle
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments – Credit Losses.

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/s/ KPMG LLP
Memphis, Tennessee
March 1, 2022


EXHIBIT 24
Power of Attorney
Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint HOPE DMUCHOWSKI, JEFF L. FLEMING, CLYDE A. BILLINGS, JR., and DANE P. SMITH, jointly and each of them severally, his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place, and stead, in any and all capacities, to execute and sign the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 to be filed with the Securities and Exchange Commission (the “SEC”) pursuant to the provisions of the Securities Exchange Act of 1934 by First Horizon Corporation and, further, to execute and sign any and all amendments thereto and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, or their or his or her substitute or substitutes, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

SIGNATURETITLEDATE
/s/ D. Bryan Jordan
President and Chief Executive
Officer and Director
(principal executive officer)
February 28, 2022
D. Bryan Jordan
/s/ Hope Dmuchowski
Executive Vice President and Chief Financial Officer
(principal financial officer)
February 28, 2022
Hope Dmuchowski
/s/ Jeff L. Fleming
Executive Vice President and Chief Accounting Officer
(principal accounting officer)
February 28, 2022
Jeff L. Fleming
/s/ Harry V. Barton, Jr.
DirectorFebruary 28, 2022
Harry V. Barton, Jr.
/s/ Kenneth A. Burdick
DirectorFebruary 28, 2022
Kenneth A. Burdick
/s/ Daryl G. Byrd
DirectorFebruary 28, 2022
Daryl G. Byrd
/s/ John N. Casbon
DirectorFebruary 28, 2022
John N. Casbon
/s/ John C. Compton
DirectorFebruary 28, 2022
John C. Compton
/s/ Wendy P. Davidson
DirectorFebruary 28, 2022
Wendy P. Davidson
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2021 FORM 10-K ANNUAL REPORT



EXHIBIT 24
Power of Attorney
SIGNATURETITLEDATE
/s/ William H. Fenstermaker
DirectorFebruary 28, 2022
William H. Fenstermaker
/s/ J. Michael Kemp, Sr.
DirectorFebruary 28, 2022
J. Michael Kemp, Sr.
/s/ Rick E. Maples
DirectorFebruary 28, 2022
Rick E. Maples
/s/ Vicki R. Palmer
DirectorFebruary 28, 2022
Vicki R. Palmer
/s/ Colin V. Reed
DirectorFebruary 28, 2022
Colin V. Reed
/s/ E. Stewart Shea, III
DirectorFebruary 28, 2022
E. Stewart Shea, III
/s/ Cecelia D. Stewart
DirectorFebruary 28, 2022
Cecelia D. Stewart
/s/ Rajesh Subramaniam
DirectorFebruary 28, 2022
Rajesh Subramaniam
/s/ Rosa Sugrañes
DirectorFebruary 28, 2022
Rosa Sugrañes
/s/ R. Eugene Taylor
DirectorFebruary 28, 2022
R. Eugene Taylor

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2021 FORM 10-K ANNUAL REPORT


Exhibit 31(a)
FIRST HORIZON CORPORATION
RULE 13a-14(a) CERTIFICATIONS OF CEO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, D. Bryan Jordan, certify that:

1.    I have reviewed this annual report on Form 10-K of First Horizon Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 1, 2022

/s/ D. Bryan Jordan            
D. Bryan Jordan
President and Chief Executive Officer


Exhibit 31(b)
FIRST HORIZON CORPORATION
RULE 13a-14(a) CERTIFICATIONS OF CFO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, Hope Dmuchowski, certify that:

1.    I have reviewed this annual report on Form 10-K of First Horizon Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 1, 2022


/s/ Hope Dmuchowski        
Hope Dmuchowski
Senior Executive Vice President and Chief Financial Officer


Exhibit 32(a)
CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CEO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350


I, the undersigned D. Bryan Jordan, President and Chief Executive Officer of First Horizon Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.    The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.


Dated: March 1, 2022



/s/ D. Bryan Jordan            
D. Bryan Jordan
President and Chief Executive Officer



Exhibit 32(b)
CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350


I, the undersigned Hope Dmuchowski, Senior Executive Vice President and Chief Financial Officer of First Horizon Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.    The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.


Dated: March 1, 2022



/s/ Hope Dmuchowski        
Hope Dmuchowski    
Senior Executive Vice President and Chief Financial Officer